Last week, Israeli government ministers had to approve a 2% across-the-board cut in the budgets of their ministries. The government said the NIS 1.9 billion cut was designed to cover some of the cost of Operation Protective Edge, a cost estimated at NIS 4-5 billion by the Ministry of Finance and at NIS 9 billion by the Ministry of Defense. The Ministry of Education's budget alone was cut by nearly NIS 500 million, and hundreds of millions of shekels more were cut from the budgets of the other social ministries.
The across-the-board cut, which once again attacked the already depleted social and civilian services system, have led Macro Center for Political Economy director general Dr. Roby Nathanson to ask an interesting question: What happened to the supposed multi-billion state treasury surplus at the beginning of the year? Whence the haste to cut the budget before using the reserves accumulated in the treasury? "Less than a year ago, we had a strong economy, with surplus tax revenues and a lower-than-planned budget," Nathanson says. "I remind you that the situation was so good that the Minister of Finance declared that he was calling off the second stage of raising the income tax brackets scheduled for the beginning of the year, which would have brought the state treasury an additional NIS 3.6 billion. This reality of surplus tax receipts, compared with the budget forecast, also continued into 2014, right up until the beginning of Operation Protective Edge."
Exactly how much money is involved? According to an examination conducted by Nathanson, whose findings will be presented tomorrow at a Macro Center conference in cooperation with the Friedrich Ebert Foundation, a surplus of no less than NIS 16.1 billion has been accumulated: surplus tax revenue totaling NIS 6.1 billion in 2013, NIS 6.7 billion in allocated spending that was never spent during the recent budget year, and an additional NIS 3.3 billion in surplus tax revenue in the first half of this year.
What has happened to the money? In order to find out, Nathanson probed the controversial path of budget transfers, through which 10% of the state budget is diverted every year (as estimated by the Knesset Research and Information Center), without transparency or proper parliamentary supervision. At the end of 2013, a NIS 5 billion transfer to the defense budget was approved, but this money came mostly from cuts in the budgets of various ministries (NIS 2.74 billion) and from defense budget surpluses caused by US aid (NIS 1.8 billion). The Ministry of Defense received another large budget transfer of NIS 3.9 billion on August 14 in the middle of Operation Protective Edge: an immediate NIS 1 billion transfer, an authorization for an undertaking totaling NIS 2.2 billion, and NIS 680 million more from an unspecified source.
What about the rest of the money? Fiscal rules bar the Finance Ministry from using tax revenue surpluses for current budget needs in a way that deviates from the spending ceiling stipulated in the budget. For this reason, the surpluses were transferred to reduce the 2013 deficit from the forecast 4.33% of GDP to an actual 3.15% of GDP. In other words, the Finance Ministry used the money to repay debt. What about the budget allocations that were not actually spent in 2013? Most of this money was promised in undertakings to various suppliers and contractors (what the Finance Ministry calls "committed surpluses"), and was paid in 2014. Nathanson asserts that dragging payments budgeted for 2013 into 2014 enabled the Finance Ministry to postpone payments in 2014, thereby making the money available.
"There is no doubt that the state budget has a large enough surplus to both cover one-time defense needs resulting from Operation Protective Edge and devote resources to dealing with poverty and social matters, without any across-the-board cuts," Nathanson summarizes. "In addition, if they go ahead with the planned income tax increases starting with the bracket paying 31% income tax (income of NIS 14,000 and up), the state treasury would be richer by over NIS 2 billion, the same amount being cut by the various ministries."
Published by Globes [online], Israel business news - www.globes-online.com - on September 4, 2014
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