What is the budget dispute about?

Shortly after the outbreak of war, when it became clear that we were at the beginning of a campaign that would have huge economic consequences, the government said that it would revise the 2023-2024 budget to take account of it. This week, however, following the approval of the revised budget by the government, there was an outcry. Benny Gantz and the ministers from his party voted against the budget, claiming that the coalition funds, which had no connection to the war effort, had not been cancelled. For their part, Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich claimed that the dispute was minor, and that there was no point in dealing with it at this time. So who’s right? We took three main points and provided background and context that will help you to judge.,

What are “coalition funds”?

“It’s not at all clear why this money is called coalition money” – Bezalel Smotrich, post on Facebook.

This is perhaps the heart of the dispute, and to some degree it’s both a technical question and a matter of principle. “Coalition funds” are money allocated to a political entity out of the state budget for purposes set out in the coalition agreements. The allocation is through “budgetary regulations”, and these are approved by the government, and not in Knesset legislation. Under the attorney general’s directive 1.1801, coalition funds can be part of the budget only in accordance with the period stipulated in the coalition agreements, without being included in the budget base beyond that period. In other words, coalition funds are necessarily external to the budget framework, and will not automatically be part of the budget for the following year.

At the same time, not every budget demand raised in the course of coalition negotiations necessarily comes into the category of coalition funds. For example, if the budget for the police grows substantially following demands raised by Minister of National Security Itamar Ben-Gvir, that doesn’t mean that it would be correct to classify the increase as “coalition funds”.

What is not in dispute is that, under the present government, the amount of these funds has increased considerably. The budget approved before the war included NIS 5.8 billion in this category for 2023, and NIS 7.9 billion for 2024. In the past, under previous governments, the sums were far smaller.

After the war broke out, Smotrich announced that he would cut 70% of the coalition funds in the 2023 budget that had not been spent (NIS 1.6 billion). In fact, for reasons that will not be detailed here, the cut that was approved was just NIS 860 million.

Is NIS 5 billion a lot?

“(The coalition funds) are about 1% of the total budget” – Benjamin Netanyahu, press release.

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So, after the above-mentioned cut, the coalition funds for 2023 will come to NIS 4.96 billion. Is that a large amount? Netanyahu and Smotrich present it as insignificant. “The political dispute is over one percent of the total budget,” a press release on behalf of the prime minister states. “We agree on 99% of the budget and disagree on just 1%,” Smotrich said to Gantz, adding, “I call on you to rise to the greatness of the hour.”

Mathematically speaking, this claim is correct (in fact, it’s a matter of 0.8% of the budget), but is this a fair way of presenting things?

Tom Sadeh, a research assistant at the Aaron Institute for Economic Policy at Reichman University, commented on this point this week. The flexible part of the budget, he wrote, is small. Most of the budget consists of expenditure deriving from legislation or agreements (wage agreements, debt servicing, and so on), and is inflexible. How small is the flexible part? It’s hard to say exactly, but on a rough calculation as presented by Sadeh, it amounts to well under 10%.

Talking to “Globes”, Sadeh explained that his estimate is based on certain indicators (such as population growth, wages, and price levels) that make it possible to estimate by how much the rigid part of the budget has grown, such that growth beyond that can be attributed to the flexible component.

What is important here, of course, is not the precise figure, but the principle. When the scope of politicians’ influence on the total budget is in any case very small, clearly that 1% acquires great importance, and it Is not correct to present the dispute over it as minor or small-minded.

Prof. Omer Moav, of Reichman University and the University of Warwick, points out another problematic aspect of presenting things in this way. “People have a tendency to think in percentage terms even when that just isn’t reasonable, and when it comes to the state budget, that kind of thinking is a real mistake,” he says.

“When the state has to deal with very large unexpected expenditure, it has to pay much more for every additional amount spent, in the form of the rising marginal cost of loans,” Moav explains. “The more loans Israel takes, the higher the rate of interest it will have to pay on the debt. That is to say, the price of a loan rises as the total amount borrowed grows.”

Since we will bear the interest on these loans for a long time to come, even if the increase in expenditure is not much felt in the immediate term, in the long term it carries a significant price.

Why is a haredi teacher discriminated against?

“I am in no way prepared to discriminate against a teacher just because she is haredi” – Bezalel Smotrich, Radio Kol Hai.

One of the most contentious items in the coalition funds is the pay rise for teachers in the haredi (ultra-Orthodox Jewish) education system. While many call for the pay rise to be scrapped, the government presents an argument that sounds valid: Why should a haredi teacher receive a lower salary than other teachers?

Some of the explanation for this lies in “Ofek Hadash” (“New Horizon”). This is a reform that began in 2008 and was applied to teachers in the state and state-religious education systems – and improved their pay – but was not implemented in the haredi school system.

The government decided that the haredi education networks should join the program, and that the teachers’ salaries should thereby rise. But the reform also includes obligations. As Dr. Dr. Gilad Malach, director of the Ultra-Orthodox in Israel program at the Israel Democracy Institute, explained to “Globes”, it involves, for example, an obligation to report on the number of teachers employed, the scope of their jobs, and so on. He says that this is a level of supervision lower than that imposed on the state system, but that even these obligations have yet to be fulfilled.

Equal pay is also meant to be linked to the content of the curriculum. Most haredi primary school pupils attend schools in networks defined as non-official recognized schools, which receive full budgeting from the Ministry of Education (apart from the gaps arising from the Ofek Hadash program). Accordingly, they are obliged to teach the full core curriculum.

Does that actually happen? The quality of supervision of core curriculum studies )subject such as mathematics, science, English) in these networks comes in for considerable criticism. Dr. Ariel Finkelstein of the Israel Democracy Institute, for example, has shown that the rate of fines imposed on haredi school networks for failure to teach the core curriculum subjects is low, “even though, in relation to English alone, there are indications of a much higher proportion of institutions that don’t teach it at all.”

Published by Globes, Israel business news – en.globes.co.il – on November 30, 2023.

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