It might sound weird, but even 48 hours after the cabinet meeting during which the state budget was passed, the Ministry of Finance could not tell how much money was being divided up.
The state budget, they explain, is not exactly a grocery ledger. Knowing exactly how much money was allocated and for what causes would require carrying an in-depth examination, negotiating details, analyzing the budgetary implications and all of this would take time. On the other hand, the same sources say, no budget was allocated which exceeds the overall planning - everything had been planned and known in advance.
So how do we nevertheless know how much money was allocated during this marathon meeting? It is very simple. In order to close the gap which developed during the meeting the Ministry of Finance imposed an across-the-board cut in ministerial budgets. The original plan had been to impose a 2% cut, starting with the 2016 budget, but at the end of the meeting, on Friday morning, it was decided to impose a further, 2.5%, flat cut starting in 2017. This cut is expected to save NIS 2.5 billion of state expenses, which is exactly the sum handed out during the night. We will return to this flat cut in an instant.
The winners and losers
"We did not give anything we had not planned to give in advance." And, to a large degree, they are right. This show, whichcontinued for almost 20 hours non-stop, was mostly scripted.
For example, the government ministers' victory announcements, sent to reporters during the night. Minister of Science, Technology and Space Ofir Akunis, Minister of Culture and Sport Miri Regev, Minister of Welfare and Employment Haim Katz and others they all managed to get billions from the Ministry of Finance and increase the budget of their ministries to unprecedented sizes. In fact, the increase in ministerial budgets was mostly automatic. It was due to population growth or commitments already given in the past. But no one has bothered to correct the ministers, prevent them from using it as leverage and from making headlines. If anyone in Israel actually buys into these bluffs - this is not the Ministry of Finance's concern.
And, of course, we had the staged nightly crisis. Around 2am, the ministers said that they had had enough. They are going home. It happened after the Ministry of Finance budget director Amir Levy had announced that he did not intend to pay the "coalition funds", the petty cash funds the ministers receive as part of any state budget in order to distribute to a long list of causes close to their hearts, for example supporting youth movements or new settlements in Judea and Samaria.
This annual spectacle ended with a compromise which will cost the state about NIS 680 million. The Ministry of Finance considers this an achievement, since, in the last budget, this sum reached NIS 1.1 billion. Further NIS 525 million were given to support yeshivas - and this sum, the Ministry of Finance says, had also been expected and known in advance.
Nevertheless, and despite the official, confident, version, Levy and his staff encountered at least two unpleasant surprises during the budget night. The first one was Health Minister Yaakov Litzman, who went back on his support for a gradual taxation of private and complementary health insurance, which was to fund an annual NIS 200 million expansion of the National List of Reimbursed Drugs.
As a result, the Ministry of Finance was forced to finance additions to the list from the current budget, amounting to NIS 600 million in the next two years. The second surprise was the failure to pass a bid to limit increases in the education budget this will cost the Ministry of Finance another NIS 1 billion in 2017-8.
The amazing flat cut
The real hero of the budget night is not a politician or Ministry of Finance official. It is the flat, across-the-board, cut in all government operating budgets. The fact the English term is still the one used in Hebrew might indicate how long this measure has been used.
The 'flat' is the Ministry of Finance Budget Department secret weapon, only to be used when all other defense lines are down. An amazing weapon that works like an ATM connected to an endless source of money.
Did the government meeting end with a NIS 2.5 billion gap? No problem. We will just impose a 2.5% flat cut and the problem is solved. The budget had been closed, the deficit had been maintained and the expense limit had remained intact. But the flat cut has a price. First of all, it affects the government ministries' ability to operate, which has gradually but significantly eroded. Then, it is imposed indiscriminately - where cuts are necessary and where they are not. Across-the-board cuts destabilize the entire financial conduct of government ministries. The ministries are rushing to allocate and spend as much of their budget as possible before the government meeting, similarly to the treasurer who burns all the money he has in his bank so that there will be nothing left to take.
The Ministry of Finance claims that the volume of flat cuts is lower than it used to be. The reason for this is that the scope of the cut had been extensively expanded and the number of exemptions had been reduced. At present, a one percent flat cut equals NIS 1 billion savings, compared with NIS 200 million in the past. If Levy had attained one real achievement during the budget meeting, it was that the Ministry of Defense did not manage to escape a flat cut - possibly for the first time in the history of Israel.
Director General of the Ministry of Finance Shai Babad is also fond of across-the-board cuts, and considers it an incentive to increase efficiency. At present, the flat cut is so popular in the Ministry of Finance that during the meeting the next flat cut was already decided on: 2.4% of operating budgets in 2019.
Published by Globes [online], Israel business news - www.globes-online.com - on August 15, 2016
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