Kulanu head Moshe Kahlon and Prime Minister Benjamin Netanyahu shake hands after signing the coalition agreement.
(photo credit: PRIME MINISTER'S OFFICE)
The 2015/16 state budget was expected to pass by morning after marathon negotiations among ministers and Finance Ministry officials at the Prime Minister’s Office that stretched late into the night.
There was already a majority for the budget from Likud ministers, many of whom went home and left votes in favor on notes of paper. But Finance Ministry officials continued negotiating with Shas and Bayit Yehudi ministers in an effort to receive their support as well.
“The teams will continue working to solve remaining differences with [Bayit Yehudi chairman Naftali] Bennett and [Shas leader Arye] Deri,” a source at the Prime Minister’s Office present for the deliberations said late Wednesday night. “There are enough hands and notes in favor.
That was not a problem for even a moment.”
When the cabinet meeting on the budget began Wednesday morning, Shas officials boycotted it to protest the refusal by the Finance Ministry to distribute benefits to the poorest sectors of society via the party’s zero percent value-added tax flagship policy.
But by late Wednesday it appeared that differences had been resolved by appointing a committee.
“Deri and [Finance Minister Moshe] Kahlon have agreed on discounts in VAT for public transportation, water and electricity,” a source close to Deri said. “Teams from the Finance and Economy ministries will decide within 30 days how to implement the decision.”
In a step toward obtaining Bennett’s support, the Treasury agreed to restore half of an NIS 240 million cut in the budget for higher education and invest an equal amount for building dormitories at universities. Bennett had said he would not vote for the budget if the cut was not restored.
The Finance Ministry reached deals with Likud ministers Gilad Erdan and Haim Katz, who had been threatening to vote against the budget. The only Likud minister who was expected to not cast a ballot in favor was Culture and Sport Minister Miri Regev, who protested the cut in her budget by sending the Ra’anana Symphonette Orchestra to play outside the Prime Minister’s Office.
“My budget should be raised, not cut,” Regev told reporters at the protest.
In order to make all the numbers add up, Kahlon had to make unpopular decisions.
He raised the deficit for both years to 2.9 percent, up from the 2.5% planned for 2015 and 2% for 2016. According to Bank of Israel estimates, the higher deficit will lead to the first increase in Israel’s debt burden since the global financial crisis took its toll in 2009.
The budget scaled back the roughly NIS 8 billion worth of goodies doled out to political parties during the coalition talks. Promises to increase child allotments, for example, were moderated, and a plan to create a savings account to give to every 18-year-old was introduced. It sliced 3% off ministry budgets to keep spending in line, a step that earned the ire of the ministers tasked with producing better results with fewer funds.
Those cuts included reductions in planned increases to education and transport budgets. Financial newspaper Calcalist estimated that last-minute deals – scrapping demands to exempt basic food from value-added tax in exchange for a public transportation subsidy and cuts in the excise tax on electricity and water – added up to over NIS 1 billion.
The Budget Law and the Arrangements Law include several reforms that are expected to reduce the cost of living, particularly for food. They include agricultural reforms in sectors such as eggs, poultry, dairy and cattle, as well as the so-called “Cornflakes Law” focusing on dry foods, all of which will reduce import taxes and barriers to competition in order to help lower prices.
To tackle the high cost of housing that has plagued Israelis since 2007 and politicians since the summer street protests of 2011, the law would implement steps to simplify the decision-making processes in planning and construction, and speed up infrastructure building.
It contained several reforms to boost competition in the financial sector, plans to speed up infrastructure regarding Israel’s natural gas resources, and codified the reforms of the Sheshinski 2 commission regulating natural resources other than gas and oil.
Though the cost of living reforms earned the Bank of Israel’s praise, it also expressed its fierce opposition to a law that would let public companies issue bonds and credit worth billions of shekels without proper regulatory oversight.
“Changing the law may create risks for consumers, small business and the economy as a whole,” a BoI statement said, urging that the revision to Section 21 of the Banking Law be rejected until proper regulation was set up for such circumstances.
Because of structural flaws in the credit market, the BoI warned, the added competition might not help small businesses and households, but increase financial instability, which could make the whole economy worse off.
The health sector, it said, should be given more resources to handle its overflow problems.