At the beginning of this week, and against the backdrop of setting the date for approval of the 2025 budget by the government, Finance Minister Bezalel Smotrich sent a letter to the head of the Budgets Division in his ministry, Yogev Grados, in which he stated that he outlines his intention to bring about a radical change in the way the Israeli state budget is created and spent. . “The war also highlights the endemic difficulties in budget planning and management to date, as raised in numerous reports, committee findings, recommendations, and policy papers written over the years,” Smotrich wrote.
The goal is to reduce the budget department’s central control over the process, an old argument heard from economists and from other government departments for years. This will be achieved, among other things, by implementing a mechanism for transferring surpluses from year to year, transparency of agreements signed before voting but not part of the budget, which Smotrich calls the “shadow budget,” and budget cuts. Number of budget items, and a pilot program to increase the budget independence of government ministries.
However, it is not clear how many of these dramatic changes will be possible to implement in the next budget, considering how behind schedule the budget process is. Moreover, when the government faces a budget hole and defense demands that will increase the national debt, strict oversight of ministries’ spending is required, and this is certainly not the time to gamble with fiscal responsibility.
To prevent the budget from blowing up
The criticism directed from various quarters towards the management of the state’s general budget is not new. The Governance Committee, chaired by the then Director General of the Prime Minister’s Office, Harel Luker, stated in its 2013 report that, “Israel is characterized by a special centralized management of the budget, compared to other countries. Many of the governance difficulties raised before the Committee relate to the budget.” issues and the high level of centralization in the system.” On the other hand, the representative of the Budgets Division told the committee that there is a fear of “decentralization measures that would violate the financial framework.”
That is, the Budgets Division wants to control the activity of government ministries to prevent budget explosion (or even impose spending efficiency), while the ministries want flexibility and independence throughout the year, within the framework approved by the Knesset.
Now, Smotrich puts himself on a collision course with the Budgets Department, following other confrontations since the beginning of the war. In this case, he is trying to remove the department’s broad control over the budget even after it was approved by the Knesset. But sources in other government ministries, and in the Ministry of Finance itself, believe that Smotrich’s approach is correct and necessary to solve long-standing professional problems.
The first change that Smotrich seeks to promote is to build a systematic methodology for updating the budget from year to year, taking into account “natural growth, inflation expectations, budget agreements, government decisions, and constant supplements that always pass.” This is in order to prevent a situation, as described by government ministry sources, where “the official budget, such as teachers’ salaries, is less than the actual budget for the previous year. Has there been a reduction in teachers’ salaries? Clearly no.”
In practice, they explain, “the Knesset approves a certain budget, but there are supplements that come every year. Take the youth movements for example: the Scouts know that they will receive an additional budget during the year, but officially they cannot count on it.” “He-she.” In this way, government ministries remain dependent on the Budgets Department, even after the official approval of the budget in the Knesset, for the supplements they need throughout the year.
However, other Finance Ministry sources say that stringent items such as teachers’ salaries have not been touched upon, but only one-time items passed under coalition agreements.
The other step is to implement a mechanism for transferring surpluses. If a particular ministry does not use its entire budget for a given year, it can receive a portion of that year’s budget the following year, but only if it commits in advance to implementing certain projects. Even if there is such a commitment, the Budgets Department controls the timing of transfer of surpluses, and can demand reforms and simplification measures in return.
The third topic is the “budget agreements” that the budget department signs with government ministries, usually before voting on the budget. These are off-budget agreements for de facto budget management, which, according to Smotrich, create a “shadow budget” that is not transparent to the public and is not subject to oversight by the Knesset and the government. According to sources in government ministries, the ambition is to “eliminate this practice,” but Smotrich seeks at this stage only to obtain the approval of the responsible ministers for the agreements within the original budget, in a way that creates a greater degree of transparency, and in a way that ensures more transparency. Practice to cancel it.
According to opposition sources such as Development, the goal of these agreements is to set conditions on the budget, ensuring that it actually serves its stated goal and is not diverted to other needs.
The fourth and final measure that Smotrich calls for in his letter is a pilot program that would give some government ministries budgetary independence and the ability to switch budgets between different items within the ministry, thus dealing with changes without having to submit repeated requests to the Budgets Department and the Knesset Finance Committee. Smotrich first raised the idea in June. He is now trying to promote this project and has asked the Budget Division for a list of ministries that it considers suitable for the pilot programme.
Smotrich writes that he hopes these measures will “strengthen the work of the Budget Division and the Ministry of Finance as a whole as a professional body that promotes reforms and growth drivers, and will reduce the significant amount of time spent on the ‘mechanisms’ of budget management and the treasury function.” This means that he wants the Finance Ministry to focus on the structural changes he seeks to promote, rather than having most of its workforce deal with ongoing discussions and confrontations with other government ministries.
Published by Globes, Israel Business News – en.globes.co.il – on October 9, 2024.
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