Delay cuts NIS 137b from Israel’s state budget

This week the government was supposed to complete the work for Knesset approval of the revised 2024 state budget, which would increase public spending by NIS 70 billion. However, delays in procedures by Minister of Finance Bezalel Smotrich have disrupted plans. The deadline has passed today (Tuesday) for enacting the new budget and instead there is an across-the-board cut of all ministries budgets totaling NIS 67 billion in government spending, in accordance with a fixed legal mechanism.

The result is that the government will currently have to manage with NIS 137 billion less than planned (the extra NIS 70 billion plus the NIS 67 billion forced cut) – a huge gap of 30% less than the planned budget.

Ministry director generals have been in a strange situation since the start of the year caught between cuts hovering over them. Cuts to moderate the jump in the deficit due to the defense expenses and indirect costs of the war, estimated at NIS 255 billion, while the Ministry of Finance has introduced a second, more moderate across-the-board cut in the budget of 5% in the, as well as other individual cuts in programs.

Two comfortable months are over

In other words most ministries have suffered a temporary paralysis in their budgets this week, and are now waiting for approval of the new budget so that the astronomical cut will be replaced by a cut that hurts but less. Technically, within the resulting chaos, the most favorable budgetary situation for the ministries was the one that prevailed until now. In the absence of an approved state budget adapted to the economic reality imposed by the war, and before entry into force of the across-the-board budget that was in effect for almost two months from the beginning of the year, is the budget approved in May 2023, as part of the original biennial 2023/2024 budget.

In an attempt to bring order and curb spending, at the start of 2024, the Ministry of Finance accountant general Yali Rothenberg, sent instructions to the ministries for the war period. These guidelines set priorities for spending, limited new initiatives and excluded expenses considered luxuries such as advertising, or flights abroad. The accountant general explains that these guidelines will remain in effect – and may even be re-validated – now that the across-the-=board cut has been applied.

The budget clauses are still being discussed in the various Knesset committees in preparation for second and third readings in the plenary. The budget will come into force after final approval by MKs, which according to Ministry of Finance estimates is scheduled for early March. Until then ministries will have to tighten their belts and delay spending.

Ministry of Finance sources insist no real paralysis will be felt in government activities and “creative solutions” will be found to transfer funds in urgent cases. At the beginning of the war, when unexpected funds were needed for the IDF and evacuation of residents and there was no approved budgetary framework, officials adopted a more flexible policy and allowed “retroactive” amendments in spending. Will they show similar flexibility now to allow the government to bypass the law? Doubtful, but it is within the discretion of each ministry’s accountants and subject to instructions of the accountant general.

Published by Globes, Israel business news – en.globes.co.il – on February 20, 2024.

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