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.

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