National unity gov't is Israeli Treasury's dream

Netanyahu Gantz

A national unity government would be able to rein in the small parties' budget demands and enable the Ministry of Finance to push the measures it wants through the Knesset.

Who will be the next minister of finance? The race for the most important economic job will begin immediately after the composition of the next government is decided, but speculation is already rife. Labor-Gesher leader MK Amir Peretz and former Jewish Home leader Naftali Bennett are the two politicians who want the job the most. Bennett is a capitalist and free market devotee, while Peretz is a social democrat. The modest electoral achievements of Yamina (Bennett's party) and Labor-Gesher in the elections, however, make it unlikely their selection unlikely, assuming that a broad government is formed.

Minister of finance is a portfolio for a senior coalition partner, if not the prime minister's own party. Before the elections, the name of former Histadrut (General Federation of Labor in Israel) chairman Avi Nissenkorn from the Blue and White Party was suggested as a candidate for minister of finance, but Blue and White leader Benny Gantz's announcement that he was setting aside the defense and education portfolios for his party's senior partners makes it less likely that Nissenkorn will get it. Another possibility is that the Ministry of Finance will be given to the Likud, in which case MKs Yisrael Katz and Yuval Steinitz will compete for it. One possible dark horse is Yisrael Beitenu leader MK Avigdor Liberman, assuming that Yisrael Beitenu is a senior coalition partner. Liberman likes dealing with economic issues, and minister of finance is the most senior portfolio still missing from his resume as a future candidate for prime minister.

Preferences of the Ministry of Finance's officeholders and regulators

The president does not make a practice of consulting senior officeholders in the Ministry of Finance and the Bank of Israel and the financial regulators before decided whom to appoint to form the government, and that is a good thing. Were Reuven Rivlin to ask these people for their recommendations, however, they would probably ask him to back the formation of a broad and stable government that will keep a tight rein on the Knesset.

Stability is the key word. For the professional staff, there is no advantage in a broad government conducting policy in an atmosphere of elections, with constant competition between its members, as happened with the last government in its last two years. The Ministry of Finance needs a stable government to pass the 2020 budget, which is sure to contain cutbacks and convergences.

The Ministry of Finance needs such a government in order to carry out even some of the tax measures that it wants to implement: elimination of the VAT exemption for personal imports (online purchases up to $75), elimination of the exemption on rental income up to NIS 5,000, a tax on sugary drinks and disposable cutlery, a congestion tax, etc. None of these taxes are political feasible in a government of the rightwing and haredi (Jewish ultra-Orthodox) parties. Netanyahu does not believe that any tax hikes are necessary, and the haredim will exert all of their power against a tax on sugary drinks and disposable cutlery, which are widely used in the haredi sector.

The importance of stability for the Ministry of Finance and other senior financial officeholders, however, goes far beyond the 2020 budget. It is essential for their regular work with the Knesset.

In addition to the budget, the Ministry of Finance's agenda also includes the pension age for women and legislative initiatives such as the metro bill, imposing a congestion tax, and establishing a metropolitan transportation authority, which many professional staff believe to be essential. The attempts to push the establishment of a metropolitan transit authority as part of the budget law failed, because the haredi parties feared that this would pave the way to the operation of public transportation on the Sabbath.

In order to carry out the measures, the Ministry of Finance needs a coalition that will control the Knesset. In recent years, the Knesset has become a place that senior officeholders from the Ministry of Finance, the Bank of Israel, and the financial regulators will do anything to stay away from.

The failure to raise the pension age for women, restriction of executive salaries in the financial system (which the Ministry of Finance opposed in its final version), the struggle over the Reducing the Use of Cash Law, the struggles over implementation of the Strum Committee recommendations in the reform committee, and private members' bills on banking that make the Bank of Israel uneasy. To this can be added the poor relations with former Capital Market, Savings, and Insurance Authority Dorit Salinger and the huge effort that was required from the Ministry of Finance and the Ministry of Justice in order to pass a law designed to prevent tax evasion by US residents with financial accounts outside the US. These are only some examples of what a mutinous Knesset can do.

In addition to ministers, what about the Knesset financial committee chairperson?

The decision about who will chair the Knesset Finance Committee is no less important to the Ministry of Finance than the question of who will be minister of finance. The election results have created a real possibility that virtually perpetual Finance Committee chairman MK Moshe Gafni (United Torah Judaism) will not keep this position.

In the event of a unity government with no religious parties, the first name to arise is Nissenkorn, who is known as a tough negotiator who will certainly not make things easy for the Ministry of Finance. The Ministry of Finance will nonetheless shed no tears about the exit of Gafni, a sharp-tongued experienced parliamentarian who was the ministry's toughest foe in the previous Knesset.

Frustration with Gafni made Minister of Finance Moshe Kahlon curse. Also memorable was Gafni's expression of rage against Ministry of Finance director general Shai Babad, which for better or for worse was documented by cameras in the Knesset Finance Committee meeting room.

Gafni posed an unusual challenge to the professional staff in the Ministry of Finance, the Ministry of Justice, and the Bank of Israel. His activity on behalf of private social welfare funds, for example, forced the professional staff to accept far-reaching compromises in the disclosure rules that Israel undertook to adopt vis-à-vis the US tax authorities and the OECD. The Ministry of Finance also had to attenuate the Reducing the Use of Cash Law under pressure from Gafni.

Gafni's social agenda extended far beyond the narrow interests of the sector that he represents. He played a decisive role in defeating the tax on a third housing unit that Kahlon wanted to enact, and prevented approval of the plan for raising the pension age for women that the Ministry of Finance strove with all its might to promote.

When the Ministry of Finance's staff decided on a tactical retreat and a one-year delay in raising the pension age, Gafni told them that the hope "that in another year I won't be here, and you'll manage to push through the plan that you want, is a false hope." Now, however, with hindsight, the Ministry of Finance probably has no regrets.

The Ministry of Defense gets strong backing

Formation of a unity government is likely to greatly hamper the Ministry of Finance in its biggest budget contest: the battle of the defense budget. The new government will have to approve Tnufa, the new multi-year budget plan designed to replace the Gideon plan. Tnufa will set the defense budget for 2020-2025.

The differences between the IDF and the Ministry of Finance are wide. Among other things, the IDF strongly opposes the Ministry of Finance's demand for another cut in men's compulsory military service, refuses to reopen the agreements on the bridging pension, makes the transfer of the Modi'in intelligence center to the Negev contingent on construction of a special railway to the base, and demands large budget supplements for procurement and force building.

Whom will the ministers support? Prime Minister Benjamin Netanyahu has formulated a plan that greatly increases the defense budget. As minister of defense, Liberman supported an increase in the defense budget. Blue and White has not said anything about the defense budget to date, but a party led by three former IDF chiefs of staff, veterans themselves of defense budget battles, is unlikely to be more attentive to Ministry of Finance officeholders than to their former IDF subordinates.

A major budget battle against the Histadrut

Another major budget contest awaiting the Ministry of Finance involves the Histadrut and the new framework agreement for state employees. In this struggle, the Ministry of Finance is likely to benefit from the fact that the Histadrut still has no patron or ally, as Nissenkorn had in Kahlon. The Ministry of Finance is therefore likely to achieve more than it did in the previous agreement, in which public sector employees won a pay increase of almost 8% in return for agreeing that half of it would be paid differentially.

The coalition agreements are likely to be especially lean in a Likud-Blue and White unity government, and may even include a reduction in the number of government ministries - a measure that will save several hundred millions of shekels more. If Yisrael Beitenu also joins the coalition, the added cost of its demand for a sharp increase in income supplements for poor senior citizens could cost the budget as much as NIS 2.5 billion a year.

The urgent issues on the next government's agenda

Budget: Passing the 2020 budget and reducing the budget deficit, which is liable to reach NIS 50 billion

Pension: Raising the pension age for women

Transportation: Approve of the metro plan for the greater Tel Aviv area and decision making

Wages: Signing a public sector wages framework agreement

Defense: Agreement on a multi-year defense budget

Published by Globes, Israel business news - en.globes.co.il - on September 19, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Netanyahu Gantz
Netanyahu Gantz
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