Another biennial budget?

The original reason for biennial state budgeting was rather prosaic – most state legislatures simply convened only once every two years.

Knesset 521 (photo credit: Marc Israel Sellem)
Knesset 521
(photo credit: Marc Israel Sellem)
Last week we were informed that by the end of March the Finance Ministry will decide whether Israel’s next budget will once again be biennial (2013-2014) or annual (2013).
Back in 2009, soon after the formation of the new government following the February general elections, Finance Minister Yuval Steinitz decided that since the Knesset had not managed to approve the 2009 budget before the elections, and since the ministry was about to start preparing the 2010 budget, common sense dictated a biennial budget for 2009-2010. Steinitz was so pleased with the result that at the end of 2010 he introduced a second two-year budget for 2011-2012.
Steinitz has consistently argued that no state before Israel had ever tried biennial budgeting, involving the submission of a full two-year budget every two years. He is only partially right. In fact there have been cases in which states have decided to approve a two-year budget due to general elections that interfered with the regular budget approving process (for example, Hungary in 2000). Franco’s Spain had biennial budgets well into the 1970s. Bahrain today has two-year budgets. Biennial budgets are common in many international organizations, including the UN, though clearly the considerations of organizations and states are different.
In the US, where after World War II 44 of the 50 US states had biennial budgets, today only handful of states still maintain this archaic practice. It should be noted that the original reason for biennial state budgeting was rather prosaic – most state legislatures simply convened only once every two years.
Since the early 1970s the US Congress has dealt with dozens of bills proposing to change federal budgeting from annual to biennial budgets, and even today there is such a bill on the Congressional agenda – The Biennial Budgeting and Appropriations Act of 2011. However, time and again the initiatives have failed, and the new bill is not expected to pass either.
The main motive for proposals in the US to change the system is the totally unsatisfactory process of dealing with the budget in Congress, involving a lot of time being wasted every year on deliberations that on occasion end with the budget simply not being approved.
As in the US, so in Israel the main argument in favor of biennial budgeting is that preparing and approving a new budget every year is extremely time consuming, and leaves very little time for serious deliberation and subsequent oversight of implementation. From the Finance Ministry’s perspective, two-year budgets are also a way to not have to contend every year with what it regards as Knesset obstructionism.
The main argument against biennial budgeting, both in Israel and the US, is that it is impossible to make accurate predictions regarding the macroeconomic and political developments upon which the budget must be based, more than two years in advance. In the current debate on biennial budgeting in Congress the point was made that the macroeconomic premises change so rapidly that the frequent requests from the administration for supplementary appropriations have turned even annual budgeting into a fiction.
Another argument against continuing biennial budgeting in Israel is that the expectation that under the new system the Knesset would have more time for serious oversight of government expenditure simply hasn’t materialized. Knesset oversight of government expenditure remains as unsatisfactory today as it was in the past. From the vantage point of the Knesset, all that the two-year budget has achieved is to further weaken the legislature vis-à-vis the executive on financial issues.
Has the Israeli biennial budgeting experience had any impact on the current debate in the US? The only reference I found to Israel in this debate was by Republican Sen. Johnny Isakson from Georgia, who claimed six weeks ago that biennial budgeting had helped solve Israel’s financial difficulties. However, he failed to show how the two-year budgets had led to this result, and proved quite ignorant of the Israeli system, and the basic facts and figures.
While in my opinion biennial budgeting on a regular basis should be dropped, a case can be made for its occasional use, when the situation warrants it. The Austrians, for example, are currently in the midst of implementing reforms in their budgetary system that will enable two-year budgets under special circumstances, such as those that existed in Israel in 2009. However, the Austrians have no intention of turning two-year budgets into a regular occurrence.
In the meantime it should be noted that since early elections are likely to take place in Israel within the next year, preparing a new biennial budget might prove to be a total waste of time and effort.
The writer was a Knesset employee for many years. In 2009 she prepared a comprehensive study on biennial budgeting that may be found on the Knesset website.