It appears that Minister of Finance-designate and Kulanu chairman MK Moshe Kahlon is currently spending his time trying to understand what exactly Prime Minister Benjamin Netanyahu promised his coalition partners, how much it will cost, and most importantly, what will be left in the 2016 budget to pay for Kahlon's own plans, as presented to the voters during the election campaign.
From Kahlon's perspective, the answer to this question is critical. The 2016 budget is supposed to be the budget that will establish the Minister of Finance-designate's public standing, with reform in land zoning and marketing, implementation of the Allalouf Committee's recommendations on fighting poverty, and an increase in social services. The way things look now, there is more than one question mark about the ability to pay for these programs.
To tell the truth, as of now, there is no way to calculate the exact cost of the commitments in the coalition agreements. Each agreement includes deals, agreements, promises, and understandings, some of them small. Only when the Ministry of Finance budget department receives more material in an orderly way can the precise cost be calculated. As of now, various figures have been bandied about from the agreements signed from which an indication of the new coalition's price tag can be deduced.
According to various reports, Netanyahu has already promised to increase the defense budget beyond the supplements given in 2014. This will be done according to the Locker Committee's recommendations in order to maintain proper administrative procedures. Unofficial estimates of the increase start from NIS 2 billion. The addition to child allowances agreed in the coalition talks should cost NIS 2.6 billion, and an additional NIS 2 billion is earmarked for restoring support for religious institutions, advanced Judaic studies, and yeshiva students. The cost of lowering VAT on basic goods, as agreed with Shas, cannot be calculated until the list of goods eligible for the subsidy is known, but it is estimated at NIS 1 billion.
To all this must be added several hundred million shekels for "coalition money," plus NIS 600 more promised to Naftaly Bennett for funding enterprises over the Green Line, even before calculating the amounts given to Jewish communities there through the World Zionist Organization (WZO) Settlement Division. The WZO Settlement Division's budget, which was once NIS 60 million, is now NIS 600 million, plus tens of millions of shekels more promised in the future. Finally, according to various agreements, another NIS 1 billion will be spent to raise the pay of soldiers in the final year of their compulsory service.
Will his political power be enough?
All of these figures should be regarded with great caution; judging by past experience, the final figures will be different from what has been reported in the press in recent days. Nevertheless, there is no disputing that the high cost of such a narrow coalition presents Kahlon with a great challenge and more than a few pitfalls. Furthermore, Netanyahu's commitment to any arrangement in advance of the budget is open to question.
To spell it out, if Kahlon did not get Netanyahu's promise that no demands for budget supplements will be raised during the year, especially by the Ministry of Defense and the WZO Settlement Division, it means that the amounts in the budget have no upper bounds, in other words, ay question regarding about the budget amounts is of great political importance. The programs for implementing the Allalouf Committee recommendations require large supplements to pay for them, especially those involving senior citizens.
Kahlon also has a plan for cutting purchase tax and allowing imports of various products in order to bolster competition. His program includes a significant cut in land prices, some of which will be translated into a loss of government revenue. When Kahlon confers with his staff and they try to see how exactly all these amounts can be reconciled with budget deficit targets, they are liable to discover a problem: the Bank of Israel has already made it clear that according to its calculations, substantial budgetary adjustments are needed: an NIS 8 billion spending cut and a NIS 2 billion tax increase, and that was before anyone knew about the new coalition agreements.
Kahlon is proposing to tax pension provisions for high-income brackets, and to raise taxes on purchases of housing for investment. He can also rely on the Israel Tax Authority's plans to boost tax revenues from funds hitherto sent to Switzerland or other shelters, and to eliminate several exemptions. The question is whether his political power will be enough to overcome political opposition liable to arise. In addition, a way can be found to transfer surpluses generated in 2015 to 2016, which should make things easier for the Minister of Finance-designate.
In the end, Kahlon will very quickly realize that his vision of a state budget that will build his reputation and highlight his talents is at no small risk. In a small coalition, every vote counts, and every vote has a price attached. In this state of affairs, each MK asks not what he can do for the budget, but what the budget can do for him.
Published by Globes [online], Israel business news - www.globes-online.com - on May 10, 2015
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