Lapid seeks to reevaluate two-year budget

Yair Lapid on Monday, the very day he was sworn in as finance minister, postponed a Tuesday Knesset discussion on using a two-year budget, but promised that a bill extending the legal deadline for approving a new budget would move forward.

By law, the government has 45 days from the time it is seated to pass a budget for the year. Failure to do so would trigger new elections.

Tuesday’s bill would extend that deadline to 85 days, with another 50 days for Knesset approval, which would set the new budget deadline for July 31.

Since the 2012 deficit exploded to 4.2% of GDP, over double its original target, the once-praised two year budget has become a political punching bag, with critics arguing it is responsible for the imbalance.

“It cannot be that in a dynamic economic reality, the budget will be set two years ahead of time,” said freshman Labor MK Erel Margalit, who has made the biennial budget’s elimination his pet cause and elicited State Comptroller Joseph Shapira to investigate the practice.

In January, former finance ministry director-general Avi Ben-Bassat, whose name has been floated to replace Bank of Israel governor Stanley Fischer, argued in an interview with The Jerusalem Post that the government’s inability to accurately forecast revenues two years ahead of time made the two-year budget irresponsible.

He argued that it reduced the government’s flexibility to deal with changing circumstance.

“It doesn’t make sense for policy makers to tie their own hands,” he said at the time.

Yet the two-year budget was one of just a handful of policies former finance minister Yuval Steinitz urged Lapid to continue.

When Israel introduced its first two-year budget in 2009, it received praise as an innovative approach that would cut the accompanying annual political bickering in half while providing a degree of certainty to both the public and private sectors as to the government’s intentions.

“Israel succeeded in overcoming the global economic crisis because of the biennial budget,” Steinitz told the IMF in October, according to Globes. “I think that it played a key role in stabilizing the economy, improving performance, and improving the transmission from planning to execution of government policy.”

While admitting that a degree of flexibility should be introduced into the two-year budget’s implementation, Steinitz never specified what kinds of adjustments would mitigate the deficit projection problems.

Earlier in the month, the Finance Ministry submitted an amendment to the budget law calling for both an extension in the deadline and the use of a two-year budget with “technical adjustment,” though those adjustments did not address the deficit related criticism.

Even if the government decides to put an end to the two-year budget experiment, the fact that 2013’s budget may not be in place until halfway through the year may lead it to carve out a one-time exception. By July, the choice will be between a half-year budget and a one-and- a-half year budget.

Lapid agreed to a similar compromise in the coalition deal: he relented on a campaign promise by allowing 22 ministers into the government on condition that future cabinets would be capped at 18.