Israeli budget voting remains on pace despite Operation Shield and Arrow

While the government concentrated most of its efforts on Operation Shield and Arrow this past week, the Knesset committees led by the coalition continued to debate and vote on the many clauses of the national budget for 2023 and 2024, which is on track to pass by the May 29 deadline.

The budget is in fact a package of laws that includes the 2023 Budget Law, the 2023 Economic Arrangements Law, the 2024 Budget Law and the 2024 Economic Arrangements Law. The laws’ many provisions were split between over a dozen Knesset committees, which worked throughout the week and will continue this week as well.

In addition, the cabinet will debate in its weekly meeting on Sunday morning the sum of “coalition funds” in the upcoming budget, which are likely to draw public attention, as a draft circulated last week indicated that the funds will reach NIS 12.5 billion for 2023 and 2024, approximately five times the previous government’s NIS 2.4b. in the 2021-2022 budget.

What are the components of the budget bill?

Coalition funds are budgetary funds intended to fulfill political agreements that have budgetary significance. These are not part of the official budget of any government ministry. Unlike the rest of the budget, these funds are flexible and can be redirected with relative ease, as they require a cabinet decision and approval by the Knesset Finance Committee, but not an amendment to the actual Budget Law.

A significant portion of the coalition funds is expected to go to private or semi-private haredi (ultra-Orthodox) school systems that are not overseen by the Education Ministry and whose secular studies programs (known as “core studies”) are not on par with the national education system. This is expected to “direct students away from institutions that do teach core studies” and to “continue to deepen the drop in education levels of haredi men,” Finance Ministry Chief Economist Shira Greenberg wrote in an opinion that was filed last week after the funds were revealed.

The funds are likely to be approved in Sunday’s cabinet meeting, and will then head to the Knesset for approval.

Israel Hayom reported on Thursday that Shas chairman MK Arye Deri had ordered the Knesset members in his party not to participate in votes in Knesset committees, after Finance Ministry legal adviser Asi Messing opposed Shas’s flagship program, the distribution of food coupons for poor families, which, according to the draft of the coalition funds, will receive NIS 850 million between 2023-2024, with up to approximately NIS 2,400 going to each needy family.

Deri as interior minister executed a similar program during the COVID-19 crisis. Data showed that haredi families received a disproportionately higher rate of food coupons. The reason was because the criteria to receive the coupons was eligibility for at least a 70% discount on city taxes. However, city tax discounts are calculated based on income per person, and therefore the plan favored families with many children, without them necessarily needing the coupons. Haredi families are larger on average than families in other sectors and therefore they disproportionately benefited.

The current food coupon program, therefore, cannot be carried out based on the existing criteria, according to Messing. The coupons were a major campaign promise by Shas. It is unclear how the matter will be concluded, and if Shas MKs’ absence from votes will affect the pace of the budget passing.

Another issue that came up last week was a “City Tax Fund,” whose purpose, according to Finance Minister Bezalel Smotrich, is to incentivize wealthier cities to invest in housing instead of commercial real estate, and thus raise the supply of housing to eventually lower home prices.

According to law, commercial real estate pays higher city taxes than residential real estate – and therefore cities are incentivized to allocate land for commercial construction.

The proposed method was for the state to create a fund that would take a portion of the earnings of the wealthier cities from their commercial real estate, and redistribute the money to poorer cities. A large number of mayors and local authority leaders opposed the plan, arguing, among other points, that the Finance Ministry would end up using the funds for other purposes.

A number of coalition MKs sided with the local authority leaders. The Knesset Finance Committee worked intensely last week and eventually reached a compromise.

The fact that the committee continued to discuss the plan during Operation Shield and Arrow drew criticism from some opposition MKs, who argued that it was improper for the Knesset to be dealing with matters that could affect municipalities and local authorities, while many mayors and local authority leaders themselves were absent due to the operation.

Another issue that has yet to be resolved is a haredi conscription bill. According to the coalition agreements between the Likud and United Torah Judaism, the issue of haredi conscription needed to be resolved by the time the budget passed on May 29, even though the current conscription bill only expires on July 31. A forum that included Prime Minister Benjamin Netanyahu, Defense Minister Yoav Gallant, Smotrich, Ministerial Liaison to the Knesset David Amsalem and Coalition Whip Ofir Katz, met a number of times in recent weeks to come up with a new law, which would likely lower the age of haredi exemption from IDF service from the current 26 to between 21 to 23.

Shas and the Lithuanian Degel Hatorah faction, which makes up half of UTJ, reportedly agreed to delay the bill until after the budget passes as it is not realistic to pass such a bill by May 29. However, the hassidic Agudat Yisrael faction, which makes up the second half of UTJ, has not yet given up this demand, and has threatened to leave the government if the demand is not met. This is also an issue that the coalition will need to solve this week.