Expert: Israel's political parties must be more fiscally responsible

Political parties are running into deficits as the ongoing rounds of elections hits their financial reserves hard.

Dr. Assaf Shapira (photo credit: ISRAEL DEMOCRACY INSTITUTE)
Dr. Assaf Shapira
Faced with seemingly endless election reruns and unprecedented campaign expenses, political parties across the spectrum are running increasingly large deficits.
Strict limits on fund-raising mean that parties in Israel are almost entirely dependent on state funding, although highly generous in nature, for both election expenses and ongoing activities.
“You might have thought that election expenses, campaigns and so on would be more limited in the latest round of elections,” said Dr. Assaf Shapira, director of the Israel Democracy Institute’s (IDI) political reform program.
“The same parties, the same public, the same issues – but no. We have evidence that the parties will spend exactly the same amount of money on the third round, and maybe fourth round, of the elections.”
According to an October 2016 report published by the State Comptroller’s Office following the 2015 legislative elections, more than 97.3% of the parties’ total income (NIS 188.4 million) was obtained from the state. The small share of additional finances comes almost entirely from limited donations.
With the exception of one party, Green Leaf, all parties finished the 2015 election in the red, with deficits ranging from approximately NIS 220,000 (Kulanu) to NIS 16.1m. (Yesh Atid).
“Based on a 2014 law amendment, parties can take loans from the Knesset to cover their deficits. They are meant to return the loans over a four-year period between elections,” said Shapira. “Now we have six months between elections. That means additional deficits, additional loans, and they don’t pay these loans back.”
According to data published by the Knesset, outstanding loans owed to the Knesset as of mid-December 2019 ran into millions of shekels for many parties. The Likud Party currently has loans valued at some NIS 69.1m., followed by Yesh Atid (NIS 18.3m.), Israel Resilience Party (NIS 18m.), Labor (NIS 12.7m.) and Shas (NIS 9.8m.). In total, currently outstanding Knesset loans stand at almost NIS 195m.
For parties that were represented in the Knesset – whether alone or within a joint faction – for a short period and will not be represented in the next Knesset, such as Stav Shaffir’s Green Party in the November 2019 elections, Shapira says the debt is probably “lost money.”
But even in cases where these deficits will eventually be returned, they will be covered by state funding intended for ongoing party expenses. Money that ought to be spent on intraparty institutions, research and local operations, to name but a few, is spent on election expenses instead.
“We have a few problems here. One problem is that parties are not financially balanced during elections and don’t plan their expenses correctly. Parties should be more fiscally responsible. This is the third election in a row and they don’t need to spend the amount of money they spent on the April 2019 elections,” said Shapira.
The second problem is the money that should be spent on ongoing activities is spent on election expenses,” he added.
“Moreover, in recent years, the Knesset has passed several legislative measures and reforms to increase campaign financing, both to parties and candidates standing in primary elections, as well as to increase the financing for ongoing expenses.”
Although no Israeli parties have collapsed or folded due to financial issues to date, major parties found themselves deep in debt in the mid-1990s. Then, parties reached an agreement to be subjected to greater regulation in return for increased state funding.
For Shapira, the issue of parties’ reliance on state funding reflects a greater issue of distance between elected officials and the electorate. With generous state funding, combined with political donations limited to just NIS 2,300 per household in an election year and NIS 1,000 in a nonelection year, parties “do not have any interest” to interact with the public on a day-to-day basis.
“Parties represent the interests of the public, so they should be responsive and accountable. Parties overseas need to show that they are working for the public to receive donations,” said Shapira. “The lack of political responsiveness and accountability in Israel is also a serious problem because there is no geographical or personal representation for the Knesset, so the electorate votes only for parties rather than individual candidates.”
Shapira proposed that parties should be able to engage more in fund-raising. In some countries, including Germany, donation-matching mechanisms enable parties to raise funds from both the public and the state. Israeli citizens seeking to donate to parties should also be awarded tax benefits, he adds, similar to fund-raising for charitable organizations.
Further, Shapira cited a possible mechanism to ring-fence state funding allocated for ongoing party expenses. According to his proposal, half of this funding must be spent on substantive ongoing activities, rather than covering election expenses. Similar mechanisms are in operation in South Korea, Argentina and Brazil, Shapira said.
“How much does the current party funding law truly impact the parties? It has an impact as they have less interest to connect to the public, and has an impact on state revenues,” Shapira said. “I don’t know how much the public is aware, but it affects my public trust and image of the public parties. They are repeatedly using their power to receive more money from the state.”