Investigate the Budget Deficit

Compared to his predecessors, Finance Minister Yair Lapid’s conduct has been noble. When asked in a Channel 2 interview aired Friday night about the causes of the current government budget crisis, he replied: “I am not going to attack my predecessor.” But that generosity and courtesy are not appropriate. Instead of taking the politically easy way out, Lapid should be presenting the cabinet with a proposal today for the creation of a state commission of inquiry that would investigate the causes of the huge state deficit he inherited and that would find ways to ensure that there is no repeat of the current situation. In the absence of an inquiry, why should the public – which is currently being asked to pay the price of that deficit, through higher taxes and government spending cuts – believe that the mismanagement was a one-time event rather than a reflection of deep corrosion in the management of the economy?

In tough language, Lapid’s economic program describes “the substantial deterioration in Israel’s fiscal stability” and warns of shocks to the system that could lead the country to “a fiscal and economic crisis requiring much tougher and more painful steps.” There is no choice, Lapid says. “Fiscal consolidation” is now the most important order of business. His document offers two explanations for the crisis: “insufficient state revenue” and major budgetary obligations that the last government undertook.

On the surface, there is nothing here worth investigating. It’s clear who is responsible for the situation: Prime Minister Benjamin Netanyahu, who in the previous government also served as minister for economic strategy, and Yuval Steinitz, who is now minister for international relations and was finance minister in the last government. Steinitz – the strategist and the tactician who led the two-year budgeting process and dubbed it an invention of international proportions and a reflection of Israeli initiative and innovation – totally failed in managing and adhering to the budget.

At the time, Steinitz shirked the “special responsibility” that then State Comptroller Micha Lindenstrauss pinned on him in connection with the Carmel Forest fire of 2010 in which 44 people were killed. In the face of allegations that he had conditioned funding for the fire services on carrying out reforms in the service, Steinitz argued at the time that his responsibility was managing the overall budget and not that of specific ministries. This time around, however, Steinitz cannot contend that he is being misunderstood and that the failure was not within his purview. The Budget Foundations Law states explicitly that its implementation is the responsibility of the finance minister.

But the buck can’t stop with Netanyahu and Steinitz. The entire planning, budgeting and oversight system at the Finance Ministry failed. It failed in early detection of the magnitude of the deficit, in its actual creation and in hiding the information from the public prior to the January Knesset election. When the official opposition leader in the previous Knesset, Shaul Mofaz, warned in October of last year about a massive NIS 40 billion state budget deficit, Netanyahu and Steinitz disputed the figures he presented. Were they lying or did they get erroneous reports from staff members?

The senior staff at the Finance Ministry, which generally enjoys the backing of the media, must explain who was mistaken in projecting the state revenue shortfall, who fell down on the job when it comes to tax collection, who did not warn of the danger to the country’s fiscal stability in time and who permitted the cabinet to assume obligations that exceeded the budget framework. In what way are senior Finance Ministry staff members different from military intelligence officials who have been dismissed for failures in intelligence assessments? The Budget Foundations Law imposes personal responsibility on civil servants to maintain the budget framework and obligates them to warn cabinet ministers of violations. And they are subject to disciplinary sanctions for failing in that duty. But the folks at the Finance Ministry love covering for one another rather than taking responsibility. “You exceeded all expectations. You created momentum and a new spirit in the tax system,” Steinitz said of Doron Arbeli when Arbeli, on whose watch the deficit was created, concluded his tenure as director of the Tax Authority.

Lapid is continuing in the tradition of his predecessor. His economic plan lacks any proposals for a change in work procedures at the Finance Ministry. Demands for efficiency measures and structural change are all directed at other ministries and agencies. The conduct of the senior Finance Ministry officials is understandable. No one wants to admit to his own mistakes. Only an outside investigation can clarify the reasons for the fiscal collapse, expose those responsible for the situation and propose solutions. But the prospects that the cabinet will decide to investigate itself are nil. So here’s an essential issue for the current state comptroller, Joseph Shapira, to tackle.

A cost-of-living protest in Tel Aviv in 2012.Credit: David Bachar

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