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Budget deadline to complicate coalition talks
By NIV ELIS
01/24/2013
Once seated, government has just 45 days to solve nation’s financial issues; outstanding issues include budget, Tal Law.
 
Putting a government together is hard enough, but the freshly elected Knesset faces an additional challenge: passing a budget.

Normally, a new Knesset isn’t tasked with passing a budget right away – because it is already working with the budget passed in the previous year by the last Knesset – and has until the end of the calendar year to put a new budget together.

But because the last government failed to pass a budget for 2013, which was the issue that led to early elections to begin with, the requirements are different.

By law, the government has only 45 days from the time it is seated to pass the year’s budget; otherwise, new elections are called and the process starts all over again.

Speaking to Israel Radio on Election Day, Knesset Speaker Reuven Rivlin said the parties would have to form a strong coalition to ensure that new elections aren’t required.

He noted, pessimistically, that in addition to solving the budget crisis, they would also have to work out their differences vis-a-vis a replacement for the “Tal Law,” which deals with haredi enlistment into the military and civilian service, and the diplomatic process with the Palestinians.

“Usually there’s a longer period of time. Here they don’t have that luxury. They have to decide on very big things very quickly,” Finance Committee spokesman Eyal Katzir explained.

Complicating matters further, Israel has a spending law which limits how much its overall budget can go up from year to year. The last government overshot that target by about NIS 15 billion, meaning that the starting point of the budget is already in overdraft and must be cut.

A Wednesday report in Yediot Aharonot also said that an unreleased Bank of Israel document on the budget explicitly called for further cuts and tax increases to bring the deficit in line as well.

Some analysts say the election’s new political realities portend a good outcome for the budget.

“The makeup of the budgetary cuts and their effects on the various classes will be determined by the partners in the new coalition,” said Ofer Klein, head of the Economics and Research Department in Harel Insurance and Finance.

“The strengthening of the Center parties increases the chances of changing the budget to a more pro-growth one,” he continued, adding that he didn’t believe a far-Right or far-Left coalition was likely.

Ronen Mizrahi, the director of investment strategy at Mizrahi-Tefahot Bank, said that international investors will also be paying careful attention to Israel’s budgetary process.

“The diplomatic, social and economy lines that [the new government] adopts will be closely monitored by foreign investors,” he said. “In particular, elections were moved up over a budgetary deterioration, so this is the first and immediate issue for which we will have to find an appropriate solution.”

But until a budget does pass, there will be consequences on the ground as well.

Unlike the United States, where failure to pass or extend a budget with a continuing resolution shuts down government operations, Israel has an automatic mechanism that kicks in. Ministries are forced to work on a monthly budget, equivalent to a 12th of their annual allotment from the previous years.

Not only are ministries prevented from embarking on new projects until the new budget passes, but they are also forced to work with one month’s worth of money at a time, a situation that can severely curtail their operations and make the government less efficient overall.
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