In praise of the two-year budget

These initiatives can improve economic situation.

By
June 23, 2010 23:07
3 minute read.
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Any Knesset deliberation which somehow touches on the national budget offers a matchless occasion for shrill and showy free-for-alls. But, remarkably, there was little media resonance to the Knesset’s decision this week that the country’s next budget, for 2011-12, will also be a two-year one. The biennial budget bill passed by a hefty 63-32 majority.

To be sure, there was great sound and fury during the plenum debate. Former Finance Minister Ronnie Bar- On (Kadima) went as far as to brand the extended budget “sabotage against democracy.” Labor’s Shelly Yacimovich protested that “this government turns Israel into the world’s guinea-pig only in order to prolong the coalition’s lifespan.”

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Anti-extension MKs correctly note that Israel is the first country to opt for a longer-term budget and that the precedent – the 2009-2010 budget – was at the time hyped as an ad hoc emergency measure. The fact that the government chooses to go down the same path yet again, it is argued by these critics, is an abuse, demonstrating that in Israel there is nothing as permanent as something temporary.

The first two-year budget was instituted by the government when it took office in 2009, after inheriting a budgetless economy during the worst global economic crisis in decades. Yet that budget, under which we still operate, has indisputably served the country well, earning Israel numerous accolades, not least from the OECD. The latest kudos came from International Monetary Fund Managing Director Dr. Dominique Strauss- Kahn, who lauded “the original idea of a biennial budget.

These are exactly the kind of initiatives capable of improving the economic situation.”

Strauss-Kahn advises the same for others as well, explaining that it “helps stability and long-term planning.

Since a transition to biennial budgets might help economic performance of other countries, we will recommend IMF members to adopt it.”



Like Strauss-Khan, Peter Doyle, head of a recent IMF mission to Israel, considers the longer-duration budget to be “integral to the success of the new fiscal rule… It will avoid the burden of annual budget negotiations and thereby allow greater focus on efficient implementation of expenditure policies.”

Significantly, both the IMF and OECD approve of the Israeli innovation despite the admitted inbuilt risk that the longer the budget’s applicability, the lower its flexibility.

At times of drastic changes, it might conceivably prove more difficult to incorporate important adjustments. Yet such corrections would be equally vital in the event of crises triggered during a one-year budget. In any contingency, tools for modification always exist. Israel managed throughout most of 2009 on its 2008 budget configurations, devised long before the worldwide tumult.

THE MORE trenchant argument against biennial budgets is that they inherently strengthen the executive branch, weaken the legislative branch and hence upset the delicate political equilibrium. Extended budgets do theoretically rob parliamentary pressure groups of an entire year’s worth of political capital, which they rake in as each budget- season reaches its springtime climax. In the Israeli context, however, this might not be a bad thing. In fact, it may be eminently desirable.

It is here, indeed, that the core cause for harsh criticism from certain, hardly disinterested, political quarters lies.

The two-year budget plainly deprives politicians of clout.

They lose half their ability to protest – instead of yearly critiques, they are reduced to a two-year cycle.

Budget-time offers an incomparable opportunity, bitter experience has shown, for unabashed political blackmail, predicated on the premise that no government can lift more than its political weight. A crazy-quilt coalition cannot dismiss the interests of its components. This year, too, when the new budget is put together and eventually submitted for parliamentary approval, we can expect the familiar pandemonium, the red-herrings, the outrageous extortion, the threats and the inevitable real and/or apparent compromises.

However, if the double-duration budget eventually passes, we will be spared similar hijinks the following year.

Industrial quiet will be assured and time will be secured for less jittery economic management.

Plainly put, political tugs-of-war are detrimental to the national economy. The less frequent the tussles, the better off we are. Economically speaking, greater coalition stability, regardless of whose coalition it is, is a good thing.

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