A research team examining the budgeting process in Israel has just submitted its findings and recommendations in a report which criticize the manner in which the budgeting process is handled.
The research findings and recommendations were presented at the Caesarea conference of the Israel Democracy Institute, which was held at the end of June. President of the institute Dr. Arye Carmon claims there is much significance to a research of this kind, and supports actual implementation of the recommendations. According to Dr. Carmon, a wide-scale reform should be performed in the budgeting process, and the implementation of the recommendations is only the first stage in the
necessary reform.
In order to prepare the paper on the budgeting process, team members, Professor Avi Ben-Bassat of the Department of Economics of the Hebrew University (and Senior Fellow at the Israel Democracy Institute) and Dr. Momi Dahan of the School of Public Policy at the Hebrew University, met with the major players taking part in planning Israel’s State budget. In addition, the researchers visited several European countries with a coalition government system in order to learn from the reforms in the budgeting process carried out in these countries.
The researchers presented a position according to which a centralized budgeting process should be performed in Israel, similarly to most Western countries, due to its significance in maintaining the budget discipline; however, they found that the centralization of Israel’s budgeting process is too great.
Proof of this is the fact that Israel is ranked second in the world on the centralization index.
According to the researchers, there is an advantage in the preferred status of the Finance Ministry in setting the scope of the expense and the deficit at the stage of constructing the budget; nevertheless, the decisions regarding the make-up of the budget should be determined together with government offices.
The research claims that the unique information held by government offices in their fields of specialty is not properly used, and that the little involvement of government offices in determining the make-up of the budget injures the efficiency of allocating sources in the budget among different uses, as well as the effectiveness of production of public services.
In their conclusion the team members confirmed that the exaggerated centralization might lead to a budgeting policy that does not necessarily reflect the priorities of Israeli society.
The Arrangements Law was harshly criticized as well. The research team determined that the Arrangements Law is one of the major factors of the high centralization of the budgeting process, and that the law worsens the weak democratic performance in Israel, especially as Israel nears the public expenditure and taxation rates acceptable in European countries.
Further, they concluded that the use of the Arrangements Law should be permitted only at a time of economic crisis, with an economic crisis defined in the research as an expected decline in per capita GDP in the upcoming budget year.
One of the topics about which the researchers had the most criticism was the issue of transparency of the Finance Ministry in the process of preparing the budget.
The researchers determined that while the transparency in retrospect (after the execution of the budget) is at a reasonable level, the level of transparency at the most important stage of the budgeting process – the stage of discussions in the Government is too low.
Accordingly the government receives extremely limited information on the discussion about the budget’s make-up, and this injures the quality of making major decisions regarding the State’s economy.
In many cases, the research team argues, the ministers do not have an opportunity to study the issues for discussion in advance, to prepare for the discussion adequately, to raise disturbing questions, to criticize the assessments presented to them, and to reque