The State of Israel will enter the year 2021 with no budget - that is something everyone already knows. The question that is still open is whether the government will succeed in passing the budget for 2020 within the next 17 days. Unless the 2020 budget is passed by December 23 - and the chances of that happening are diminishing from hour to hour - the Knesset will be dissolved, elections will be held, and a new state budget for 2021 will be approved in the summer, at best.
The fact that the country will enter the new year with no approved budget is not causing its citizens and politicians sleepless nights. After all, this is a phenomenon that has become the new normal in Israel.
The Ministry of Finance is ready for the situation with a draft bill meant to regularize the transition from 2020 to 2021. The fact that the government chose not to discuss the bill yesterday should set a red light flashing, because if the Knesset is dissolved without the transitional provisions being enacted, there will be a real drama here, of the dimensions of a shutdown in the US. It will be recalled that 1.3 million federal employees are furloughed every time that the US Congress fails to approve a budget on schedule.
In Israel, unlike in the US, the temporary becomes permanent, and there are ways around every barrier. Thus a legal arrangement is in place that allows the Ministry of Finance Accountant General to finance the government's activity even when there is no approved state budget. Every month, Accountant General Yali Rothenberg is meant to distribute to government ministries (and use to repay debts) a sum equal to one twelfth of the previous year's budget.
In each month of 2020, one twelfth of NIS 398 billion - the total budget approved for 2019 - was distributed. If the 2020 budget is not passed, the 2019 budget will continue for a further year, in 2021. Government spending is supposed to increase each year through the mechanism known as "the automatic pilot", which is designed to ensure that government services keep pace with the growth of the population. For the Accountant General, this means that if in 2020 he was short of NIS 14 billion to cover routine expenses, in 2021 the shortfall will be NIS 28 billion. Thus far all is well-known and clear.
What Israel's public and politicians do not know is that the transition from a year without a budget to another year without a budget creates new problems for the Ministry of Finance. So, for example, money that the Ministry of Finance committed to paying in 2020 but did not manage to pay cannot be transferred to 2021. For Rothenberg, this means that he starts 2021 with a deficit of NIS 15-17 billion, representing expenses that he has to pay out of the constricting 2019 budget framework.
In addition, Rothenberg has to fund expenditure undertaken by the state in the aid programs to help the economy through the coronavirus pandemic. This amounts to NIS 54 billion to be paid out in the course of 2021 - not small change.
It is true that the temporary ordinance passed by the Knesset stipulates that this money will be considered a "non-budget box", that is, it will be above and beyond the expenditure framework allowed by law, but this temporary ordinance is due to expire at the end of 2020.
If that were not enough, the Accountant General has to squeeze into the expenditure framework the State of Israel's debt repayments. In 2019, the state had to repay debt amounting to NIS 80 billion. In 2021, the amount will jump to NIS 100 billion.
All these sums add up to a gap of over NIS 100 billion between the expenditure to which the state is committed in 2021 and the amount that the Accountant General can pay out under the law.
What does this mean? From January 1, the Accountant General will have no money to give to NGOs, organizations and institutions supported by the state, contractors and providers of services to the state, and perhaps even a pay and welfare cut will be required. It means that at the height of an economic crisis that obliges the government to inject cash into the economy, the wheels of the machine will come to a halt. Suppliers that work with the government will not be paid, and infrastructure projects will be at a standstill.
It's true that this has not happened so far, but it is liable to happen because of the transition from one year without a budget to a second year without a budget, because of the huge expenditure arising from the coronavirus pandemic, and because the government of Israel is barely functional and can't make sensible decisions.
Precisely in order to close this gap, the Ministry of Finance circulated its draft bill at the end of last week, and intended to raise it for government approval. Only, completely contrary to the good of the economy and of the citizens of Israel, the government failed to find time to discuss the bill and approve it so that it could set out on the long road to approval by the Knesset in second and third readings.
Quite likely, the catastrophic consequences outlined above will turn the bill into a political weapon in the hands of the rival parties, each of which will try to lay the blame on the other for the first shutdown ever in Israel.
Published by Globes, Israel business news - en.globes.co.il - on December 7, 2020
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