The State Comptroller’s Office announced on Monday that it would conduct an
examination into the two-year budget process and present its findings to the
Finance Ministry and other appropriate bodies in the lead-up to the 2013
budget.
The examination comes in response to an inquiry from Labor MK
Erel Margalit into the effects of passing a two-year budget on the
deficit.
On February 9, Margalit sent letters to Prime Minister Binyamin
Netanyahu, Finance Minister Yuval Steinitz and State Comptroller Joseph Shapira
demanding that they scrap any plans to prepare a two-year budget.
“This
experiment with the Israeli economy conducted by the Israeli government suffered
an abysmal failure,” Margalit wrote at the time. Overly optimistic revenue
forecasts, he noted, led to an 4.2 percent of GDP budget deficit in 2012, over
twice what was projected in the original budget.
A Bank of Israel report
issued last week attributed 2012’s revenue shortfall to depressed wage growth
and new home sales unanticipated by the 2010 projections, but hinted that the
deficit could have been averted had the government acted sooner.
“Most of
the gap was already identified during 2011,” the report said, adding that the
government made no adjustments at the time to reduce the deficit, instead
sticking to its two-year framework.
“It was only in the second half of
2012, as the deficit continued to grow, that the government decided to increase
tax rates in order to reduce the deficit, primarily heading into
2013.”
While some experts have derided the two-year budgetary process for
its reliance on inaccurate budget projections, both the Finance Ministry and the
upcoming government may have reason to hold onto it for the upcoming
budget.
Because the new government will be formed without a budget in
place, it has only 45 days to pass a budget for the year once it is formed,
making budgetary negotiations an integral part of the ongoing coalition
talks.
If Netanyahu takes the maximum amount of time to form the
coalition, (including a two-week extension of the March 15 deadline) plus 45
days to pass the budget, the state will not have a budget until May. It would
then have to begin crafting a budget for 2014, due before the end of the year.
Therefore the incoming government is likely to want to have its finances sorted
through the end of 2014 at one time, instead of fighting the same battles twice
in a row.