Seeking to split 2-year budget, Netanyahu must first convince Gantz it’s no trap

Amid economic chaos and no reliable forecasts, treasury insists planning 2 years ahead futile; but ensuing political instability could keep Blue and White head from PM’s office

Haviv Rettig Gur

Haviv Rettig Gur is The Times of Israel's senior analyst.

Prime Minister Benjamin Netanyahu (right) and Defense Minister Benny Gantz at the weekly cabinet meeting in Jerusalem on June 7, 2020. (Menahem KAHANA / AFP)
Prime Minister Benjamin Netanyahu (right) and Defense Minister Benny Gantz at the weekly cabinet meeting in Jerusalem on June 7, 2020. (Menahem KAHANA / AFP)

Scientists still don’t fully understand the coronavirus’s epidemiological character – how it ebbs and flows, not at the granular microbial level but at the macro level as it cuts a path through large populations.

“We’ve learned a lot” about the virus, outgoing Health Ministry chief Moshe Bar Siman-Tov said in an interview last week, “but we still know nothing.”

No wonder that the Bank of Israel’s macroeconomic forecast for May, which offered some dismal numbers showing Israel’s half-shuttered economy was in deep recession, also noted that much of the forecast was guesswork, as so much depended on the progress of the virus. (One point was crystal clear: the NIS 46 billion cumulative deficit in just the first five months of 2020.)

Israelis, like much of the rest of the world, are bracing over the summer for a dreaded “second wave” of the outbreak. It’s probably already here.

But what does it all mean? How bad or extended will the second wave be? Will there be more waves? What sort of long-term economic damage should we expect?

People in Jerusalem’s city center on June 16, 2020 (Olivier Fitoussi/Flash90)

As its first major act, Israel’s 35th Government must grapple with the vast ambiguities and uncertainties forced on it by the virus as it seeks to pass a state budget. The financial blueprint that keeps the vital institutions of the state functioning, stabilizes and expands the health budget, constructs financial lifelines for businesses large and small — all while maintaining Israel’s perennial war footing and cutting back spending to grapple with a runaway deficit.

And it had better do it all soon. By law the government has 90 days to present a budget or risk new elections. That means mid-August.

As treasury officials struggled to piece together a state budget that tries to account for all the unknowns, it became clear that the politicians’ preference for two-year budgets didn’t make sense this time around.

The two-year budget is a rarity among democracies. It was invented by Prime Minister Benjamin Netanyahu during his 2009-2013 government as a bid to stabilize the coalition. By law, if the Knesset fails to pass a state budget for each fiscal year by March of that year, the Knesset must dissolve and new elections need to be called. That requirement created an annual ritual of threats and posturing that sometimes took on a life of their own, shifting from a manufactured crisis to a real crisis with the power to bring on an election. In a bid to reduce the number of stations at which a government might be driven to collapse, Netanyahu began advocating — and on several occasions over the last 11 years managed to push through — the passage of a two-year state budget.

For that very reason — stability at all costs — the coalition deal between Likud and Blue and White also demands a two-year budget be passed through the end of 2021. It is a key guarantee, one of many, that Netanyahu offered his rival-turned-partner Defense Minister Benny Gantz to assure him that the transfer of power agreed on by the two men in their rotation deal would take place on time in November 2021.

The Knesset plenum votes on the state budget for 2017-2018, December 21, 2016. (Yonatan Sindel/Flash90)

But Finance Ministry officials charged with squaring all those circles discovered that their job was made far more difficult by the need to plan not only a stabilizing budget for 2020, but also a forward-looking one for the many unknowns of 2021. A two-year budget, the officials concluded, would mean delaying the desperately needed 2020 budget while the many exigencies and complexities of 2021 were researched and budgeted.

On Thursday, the heads of all major planning departments in the Finance Ministry, from Budgets Department chief Shaul Meridor to Accountant General Roni Hizkiyahu, joined a meeting of Netanyahu, Gantz, Finance Minister Israel Katz, Justice Minister Avi Nissenkorn (a former head of the Histadrut labor union federation and Blue and White’s top economic voice) and Economy Minister Amir Peretz (also a former Histadrut chief).

The purpose of the meeting: to convince Gantz that the split of the promised two-year budget into two one-year budgets was not a trick to manufacture an end-of-2020 crisis that would conveniently send the country to elections in the spring of 2021 and save Netanyahu from the prospect of a Gantz term as premier.

Gantz was not convinced. Another meeting was scheduled for Sunday.

Netanyahu’s many critics smell a trick. Wall-to-wall agreement by all major financial planning bodies in the Finance Ministry is rare. Was Finance Minister Katz, of Likud, forcing Meridor and Hizkiyahu to back his boss’s political needs? What does the Finance Ministry know now that it didn’t know when Netanyahu and Gantz signed the coalition agreement back in April?

Finance Ministry budgets director Shaul Meridor attends a press conference at the Finance Ministry in Jerusalem on December 11, 2017. (Yonatan Sindel/Flash90)

Gantz’s frustration is understandable. There’s no doubt Netanyahu enjoys keeping his political opponents off balance and guessing. There’s no doubt, too, that Netanyahu doesn’t fear an election, with the latest Channel 12 poll over the weekend showing Likud taking 41 seats and a Netanyahu-led religious-right coalition at 65 seats out of the Knesset’s 120. And to be sure, Netanyahu may well be planning to topple his government just as Gantz fears.

But it’s a leap from noting that a one-year budget is politically convenient for Netanyahu to claiming he has somehow herded and silenced the entire professional echelon into grudging acquiescence.

Treasury officials enjoy a great deal of independence. Many of Hizkiyahu’s responsibilities as accountant general are set in law, and accountants general have historically proved willing and able to criticize what they viewed as politicians’ irresponsible demands. Then there’s the fact that even Bank of Israel officials, who are beyond the immediate reach of politicians, have expressed support for the single-year budget to deal with the many unknowns imposed by the virus.

The corrections urgently required for 2020 are substantively different from the forward planning demanded by the 2021 budget, the Finance Ministry has argued. It isn’t possible, Meridor has suggested, to produce two such radically different budgets and advance them as a single piece of legislation in time to help the troubled economy and faltering state institutions of 2020.

A timetable submitted to the ministers on Thursday gives a sense of the time officials believe will be required to plan and budget each year’s bill — and shows the breakneck pace that they plan to do it in.

Prime Minister Benjamin Netanyahu (right) and Defense Minister Benny Gantz at the weekly cabinet meeting in Jerusalem on June 7, 2020. (Menahem Kahana/AFP)

The treasury hopes to hold the final cabinet debate on the 2020 budget on July 9, the first vote in the Knesset (after many rounds of committee amendments) by August 6 and the final votes by September 24. It then plans to plan, draft and present the 2021 budget to a final cabinet debate on December 9, hold a first Knesset vote on January 6 and pass the 2021 budget into law on February 24.

Budgets chief Meridor has already asked Knesset Speaker Yariv Levin to call lawmakers back from the fall recess for budget votes and committee meetings to ensure adherence to the whirlwind timeline.

Gantz is right to feel a trap has been sprung on him. There’s no fundamental reason, his spokespeople have suggested, why the two-year budget can’t pass according to 2020’s needs, and then be updated in a new bill for 2021 on the treasury’s existing schedule. It would remove the escape hatch for Netanyahu while allowing for the two very different requirements of each year to find their answer.

It would also slow down the legislative process for bills already desperately late in coming at a time of worsening economic figures.

All appeared on track for Gantz to swallow his pride and suppress momentarily his conviction that Netanyahu is at all times plotting to break his commitments, and allow the separate single-year budgets to move ahead for the good of the country.

Prime Minister Benjamin Netanyahu at a ceremony welcoming the new Health Ministry director general, in Jerusalem on June 18, 2020 (Health Ministry)

Netanyahu had won.

Then, on Saturday night, as has happened again and again over the past three months, Gantz found an unexpected source of strength to shore up his position vis-a-vis the premier.

It was the Haredi parties Shas and United Torah Judaism that did it for him, quietly informing Netanyahu that if he tried to use the 2021 budget bill as an excuse for an election-inducing fight, he’d find himself alone without his longtime allies. (Neither party would respond on the record to a request for comment.)

Haredi seminaries and schools, facing disastrous budget shortfalls due to the lack of a 2020 budget and the drying up of overseas donations, are desperate for the budgets’ passage.

We won’t vote for new elections or support you at the ballot box, the parties told Netanyahu, if the budgets — both budgets — aren’t passed first.

United Torah Judaism MK Moshe Gafni with Interior Minister Aryeh Deri at a Knesset Finance Committee meeting on February 27, 2018. (Flash90)

The Haredi parties have 16 seats between them in the current Knesset and are now polling at 17 seats. And they have one overriding raison d’etre — to ensure state funding for Haredi educational institutions.

Gantz still wants a two-year budget. Netanyahu, he believes, never ceases his fleet-footed scheming. No leverage can be surrendered in the grueling campaign to hold him to his word on the rotation agreement.

Netanyahu brought all the treasury officials he could think of to the Thursday meeting to show Gantz that the one-year budget isn’t a trick, that the “coronavirus emergency government” the two men claim to be leading must place the rehabilitation of the economy above partisan politics.

As they head to Sunday’s meeting, it is the Haredi parties, for their own parochial interests and the country’s as a whole, that may turn out to be the coalition glue keeping both men’s eye focused beyond their narrow politics.

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