In my recent last post I discussed the social protests in Israel and Israel’s balanced budget legislation. Although a popular protest, it was undoubtedly controversial. Some question whether the protesters’ call for “social justice” is directed at the middle class instead of promoting the interests of the “weaker populations,” especially those residing outside of metropolitan Tel Aviv. In response to the protests, Israel’s Prime Minister appointed the Committee for Socio-Economic Change. The Committee is expected to issue recommendations by the start of the upcoming Jewish holidays before the end of September. These recommendations will likely suggest shifts in governmental expenditures within the budget, based on the fiscal rule that caps spending and deficits.
In discussing changes in the budget one must consider an important piece of legislation. The Basic Law: State Budget for the Years 2009 and 2010 (Special Provisions) (Temporary Application) (Amendment) extended the temporary deviation from the annual budget requirement by permitting a bi-yearly budget for 2011 and 2012.
The International Monetary Fund (IMF) noted in its January 24, 2011 Public Information Notice that Israel’s bi-yearly budget was one of the fundamentals that “allowed Israel to pass through the global recession relatively unscathed” by “help[ing] to stabilize expectations in mid-crisis and establish[ing] an important precedent for the future.”
The Knesset (Israeli Parliament) Information and Research Center (KIRC) has extensively studied the pros and cons of bi-yearly budgets. KIRC’s Budgetary Control Department issued a memorandum on January 17, 2010 on this topic. The memorandum stated that one of the disadvantages of a bi-yearly budget was “the discrepancy between the budgetary policy and changes in the world and domestic economic environment.” It cited the findings of an earlier KIRC’s comparative study issued on October 19, 2009, which found that the very few countries that had implemented a by-yearly budget did so “due to a political crisis and not to economic justifications.”
The Israeli Supreme Court reviewed the constitutionality of the temporary extension of the bi-yearly budget in H.C. 4908/10 Knesset Member Bar-On v. Israel’s Knesset. Among other arguments, petitioners claimed that adoption of the Amendment violated the constitutional balance of power between the legislative branch and the executive branch. They argued that the Amendment deprived the legislature from the essential ability to review the governmental activities and priorities on a yearly basis. In rejecting the petitioners’ claim, the Supreme Court held that although the Knesset review of governmental activities is a central component of the principle of separation of powers, requiring a bi-yearly instead of yearly review did not amount to harm of the regime’s basic principles that would justify nullification of the basic law.
Although the temporary requirement of a bi-yearly budget has not been repealed, its further extension is subject to debate. In an article published by Globes, a leading Israeli business magazine, the author opined that
flexibility is the name of the game, and the biennial budget, which handcuffs decision-makers, worsens the problem. … We are not yet half way through the biennial budget, and it is already clear that it is irrelevant. The combination of the Arab Spring, which has worsened the security threat; the deteriorating global economic climate; and the social protest have overthrown the basic assumptions of the biennial budget. The macroeconomic figures that were the cornerstone of the budget plan and the numbers derived from them no longer exist.
Whether the bi-yearly budget authorization will be extended beyond 2012 is a matter for the Knesset to determine in view of global, regional, and local developments. I will be following these developments and reporting on future Knesset actions.