With perfect, albeit fortuitous, timing, Ministry of Finance Accountant General Michal Abadi-Boiangiu today held her department's annual conference. "I see no chance of the 2015 budget being approved on time, so starting on January 1, the prime minister is Michal Abadi-Boiangiu," Minister of Finance Yair Lapid declared at the conference, adding half seriously, "When I say that, I like it."
When no budget has been approved, beyond the 1/12 automatic monthly budget, the Accountant General has almost absolute authority in managing the state budget. She is authorized to determine what sum each ministry actually receives, and whether there are exceptional circumstances justifying the paying of supplements to ministries in conducting their regular activity. Abadi-Boiangiu, who has won professional appreciation from both Lapid and Prime Minister Benjamin Netanyahu, is very experienced in managing the state on a 1/12 monthly budget. Only two years ago, she managed the budget for seven months until Netanyahu's current government took office. This time, however, it appears that she faces a more difficult situation than in the past.
By law, ministries are budgeted according to their share of the previous annual budget, linked to the Consumer Price Index. Before the budgets are distributed to each ministry, however, the Accountant General has to deduct payments of principal and interest for government debt, salary payments for state employees, and payments that the state has undertaken to pay to suppliers. The remainder is divided into 12 equal parts, and the relative shares are divided among the government ministries by the Accountant General. This means that the ministries will compete for a share of the diminished pie remaining to be distributed.
The biggest and hungriest "robber" is without question the Ministry of Defense, the main victim of the cancellation of the 2015 budget, in which it was promised the biggest supplement NIS 6 billion. The Ministry of Defense will probably get NIS 1.7 billion of this amount, while the remaining NIS 4.3 billion will not be given. The gravity of the situation for the army cannot be gainsaid. Even when it was thought that the Ministry of Defense would get a NIS 6 billion supplement, the defense establishment heads claimed that it would not be enough to operate the army past May. Now that they will get only a third of what they had expected, the Ministry of Defense can be expected to set off all the siren warnings at its disposal.
Beyond the looming budget wars, the fate of the 2015 budget is being raised. As of now, the Ministry of Finance believes that the budget will be approved in May-June at the earliest, assuming that a government is formed within 45 days of the elections. If further delays occur, however, the 2015 budget could wind up being irrelevant. "It can't be ruled out that we'll have to submit a two-year budget for 2015-2016," a senior Ministry of Finance source told "Globes."
How much will the elections cost?
The Ministry of Finance estimates the cost to the economy of holding elections at NIS 1.5-2 billion. This estimate includes NIS 450 million in direct costs (money for political parties and salary and related expenses of the central election committee and the election day mechanism). The Ministry of Finance estimates the loss of revenues to the economy of the day off work on election day at NIS1-1.5 billion.
Both the IDF move to the Negev and procurement of the Namer (Leopard) armored personnel carrier are on hold
Among the issues at the core of the dispute between Prime Minister Benjamin Netanyahu and Minister of Finance Yair Lapid that led to the decision to bring the elections forward was the increase in the defense budget. While the Ministry of Finance opposes the demand for a NIS 6 billion defense budget supplement and for financing continued moving of IDF bases to the Negev, occupancy of the IDF training campus at the Negev Junction will begin next February.
The training campus, however, is only part of a much more extensive plan, which has now been put on hold, and which lies at the heart of the political crisis. The Ministry of Defense decided to suspend the tenders for building the IDF telecommunications campus in Beer Sheva and the intelligence campus near Omer for lack of money, and the local authorities in the south are warning that a historic opportunity will be missed, and that investments by knowledge-intensive companies will end. The total cost of moving the bases to the Negev is estimated at NIS 19 billion. According to the original timetable, construction of the telecommunications campus is slated for completion by 2017, and of the intelligence campus by 2020.
The project for moving IDF camps to the south is not the only one put on hold following arguments with the Ministry of Finance about money. The Ministry of Defense says that lack of money is preventing it from speeding up its procurement programs, including extensive procurement of state-of-the-art Namer (Leopard) armored personnel carriers, despite the lessons learned from the war in Gaza last summer. Since 2012, the IDF has been operating without a multi-year plan, a state of affairs that affects its ability to carry out procurement programs, build up its forces, and maintain readiness over a prolonged period, due to the absence of budget certainty. Senior Ministry of Defense sources have said in the past that the lack of a multi-year plan limits the IDF's performance capability and efficiency.
At the same time, despite the arguments with the Ministry of Finance about the defense budget and the allocation of billions for the transfer of IDF camps to the Negev, IDF headquarters in Tel Aviv expect the Ministry of Finance to transfer NIS 7 billion in the coming weeks to cover the cost of Operation Protective Edge. When this money is received, sources informed about the matter believe, the Ministry of Defense will be able to pay its NIS 2.2 billion debt to the major defense companies.
The Accountant General today criticized the army's cost cutting plan, saying, "The IDF's attitude is that salary expenses should be cut by firing 4,000 people in the permanent army. As a one-time measure, that may save money, but in the long term, it's incorrect, insufficient, and unbalanced." Abadi-Boiangiu's criticism follows a 30-month process since the government decided to enhance transparency and overseeing by the Ministry of Finance in the IDF. She added, "The existing model doesn't distinguish enough between combat soldiers and non-combatant soldiers. I don't think that the Golani Brigade commander should receive the same salary as someone who isn't risking his life every day. The differences in salary between ranks are also illogical. In my opinion, the worst thing about the salary model is that the head of army personnel has no flexibility in paying excellent officers. Young officers in the IDF 8200 Intelligence Corps unit are being offered high salaries outside the army. The budget allows only a few million shekels for paying them - a negligible proportion of the total budget. The result is that the best and most successful can't be kept in army service."
Published by Globes [online], Israel business news - www.globes-online.com - on December 1, 2014
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