One-year vs. two-year budget for Israel? Economically, which is best?

“The slump we are currently experiencing is one of the worst we ever had.”

By HAGAY HACOHEN
Defense Minister Benny Gantz [L] and Prime Minister Benjamin Netanyahu [R] wearing masks in the Knesset (photo credit: ADINA VALMAN/KNESSET SPOKESPERSON)
Defense Minister Benny Gantz [L] and Prime Minister Benjamin Netanyahu [R] wearing masks in the Knesset
(photo credit: ADINA VALMAN/KNESSET SPOKESPERSON)
The government is threatening to fall over a strife between Prime Minister Benjamin Netanyahu and Alternate Prime Minister Benny Gantz over whether to pass a one-year or two-year budget.
The Jerusalem Post asked economists: Politics aside, which is better for Israel?
In most OECD countries, a one-year budget is the norm, according to Prof. Mosi Rosenboim, chairman of the Management Department at Ben-Gurion University of the Negev.
But he said that when determining which budget is preferable, one has to understand that one-year and two-year budgets have opposing values. Long-term planning offers certainty, but reduces the state’s ability to respond. Short-term budgets increase ability to deal with urgent matters, at the expense of stability and doing what’s important for the long run.
“To make it more complex,” he said, “what’s urgent can also be important, for example, to buy ventilators for citizens infected with COVID-19.”
Israel is unusual among OECD countries in its attempt to present a two-year budget since 2010. “I would support leaving some reserve funds to deal with COVID-19 as Israel did for national defense and public health issues,” he said, “I don’t see why we can’t deal with it in a flexible manner.”
Prof. Assaf Razin of Tel Aviv University told the Post that “without a 2021 budget we’ll sink.”
“Investments, spending, already devastated, would drop and consumption spending, constrained by lockdowns and the fear of infection, would plummet.”
An expert on Israel and the world’s economy, Razin warned that Israel won’t be able to do much about exports as that is decided by other markets now badly hit by COVID-19. He suggested the Bank of Israel is tied to its current policy of a zero interest rate, so the burden of leading forward falls mainly on the Finance Ministry.
“The slump we are currently experiencing is one of the worst we ever had,” he said. “People spent less because they didn’t have money or because others, who were better off, were in lockdown and had no ways of spending their money.”

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The ministry must use the budget to lift up the economy, Razin offered. “If we have a six-week 2020 budget [after the Jewish holidays] everything will freeze.”
When committing to giving unemployment benefits and grants to businesses until June 2021, the administration showed a lack of policy and a tendency to act in random ways, which would backfire.
“The market is watching us,” he said. “Due to our random actions our debt increases, there is already talk of cutting down our credit rating. We’re in danger of losing our ability to act in the global market.”
Furthermore, it is also costly to prepare a budget, Rosenboim said. Passing a four-month budget (the actual length of the one-year budget) now would mean more work will be needed in 2021 to create a new budget, even without the politics involved.
“If they spend the next four months to create a budget for 2021 what did we accomplish?” he asked. “The country has been through three elections and the public administration cannot function without a budget.”
While he would be in favor of a long-term budget he thinks that “in this light, what’s being planned is less important than it being approved already.”


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