Israel’s budget has often been in the news in recent years, as the government has until now failed to pass a budget since March 2018, leading to political turmoil and frequent elections. A sometimes-overlooked aspect of Israel’s budget setting process is the Arrangements Bill submitted for approval alongside the proposed budget itself. Since 1985, lawmakers have used the omnibus Arrangements Bill to outline the various reforms needed in order to enact the proposed budget.
The Arrangements Bill submitted on Sunday for government approval is one of the largest in history. Among the hundreds of pages distributed to ministers for last minute approval, there are more than sixty reforms in a very wide range of areas: from drainage and transportation through health and education and as far as Bitcoin taxation; from earthquake preparedness and agricultural reform to minimal changes in the way income tax is reported.
The system of the Arrangements Bill is essentially anti-democratic. It gives the Finance Ministry, which brings the bill forward, undue influence over legislation. Reforms are brought forward and approved of without proper time for discussion from the relevant ministries. With this in mind, the Finance Ministry ought to have submitted a much smaller bill. Members of Knesset should not be afraid to demand a dramatic reduction in the bill. Several of the bill’s reforms constitute major strategic changes in the Israeli economy and must not be passed in such hurried legislation.
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Agricultural reform
A major reform in the agriculture sector is in the works despite a hasty decision-making process and inadequate dialogue with farmers: the removal of tariffs for the import of fruit, vegetables, and eggs. In the Arrangements Bill, the Treasury proposes allowing the import, duty-free, of most agricultural products. As compensation, the reform offers farmers direct support of 100 shekels (about $30) per quarter acre of land, an amount that farmers call “a slap in the face.”
The compensation seems especially illogical in its treatment of an acre of wheat and an acre of avocado as equivalent, not to mention farmland in different areas of the country. Egg producers are offered additional financial support, but only until 2027.
Such a dramatic change in the structure of Israeli agriculture has enormous implications for the livelihoods of many farmers. Unrestricted imports of agricultural goods can lead to large profits for the importers themselves without passing on significant savings to the general public. This dynamic was evident when Israel lowered tariffs on imported canned tuna starting in 2013 — only for the price of canned tuna in the stores to actually increase. And while the customers won’t necessarily benefit, the farmers will almost certainly suffer.
The reduction of agricultural tariffs could lead to dramatic declines in the price Israeli farmers are able to charge for the goods. Exporters may turn to “dumping” — intentionally flooding a foreign market with exceptionally cheap goods in order to drive away local competition — either as a regular or an ad hoc practice. Either way, this anti-competitive practice would increase the insecurity already facing Israeli farmers.
Farmers themselves are ready for reforms, including more substantive changes beyond direct financial support, but they oppose the hasty procedure of the Arrangements Bill. They demand that the reforms be discussed and implemented gradually, with long-term trials of various reforms, and not in a one-off blitz that could cause irreversible damage — not only to farmers, but also to Israel’s future food security and the way its land may soon be allocated.
The hasty reforms of the Arrangements Bill may be signed in an instant, but once agricultural industries are defunct, or farmlands and plantations are dried up, it will be difficult or impossible to reverse the damage.
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Raising the retirement age for women
The Finance Ministry’s proposal would raise the retirement age for women from 62 to 65 starting in January 2022, with a gradual annual increase. After reaching 65, an automatic mechanism would continue to increase the retirement age according to increases in life expectancy. The current retirement age for men in 67.
Israelis are eligible to receive an old age pension only upon reaching retirement age. Increasing the retirement age will therefore put various vulnerable groups of women at risk for poverty, including those who are unemployed in their middle age and workers in physically demanding professions (cleaning, caregiving, nursing, etc.) who are not necessarily able to continue working into their sixties. The proposal does not include measures to protect those who might be harmed by the move, but offers only a vague statement about the government’s commitment to creating “complementary tools” to support those harmed.
Raising the retirement age is a drastic move that will directly affect the lives of millions of women in Israel. The issue was last discussed in 2016 in the Levy Committee, named for then budget committee head Amir Levy, which formulated a list of careful steps according to which the retirement age for women ought to be raised. Ministers must not be content with vague promises of future concern for women who are affected by this change. They ought to demand that this reform be split from the rest of the Arrangements Bill in order to have a serious discussion about its implementation.
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Cancellation of bonds intended for pensions
Up until now, Israel’s budget has been tied to the pensions savings of Israelis through a mechanism known as designated bonds, according to which the state borrows money from the pension funds by issuing bonds at a fixed interest rate. Both parties benefit from the deal: the pension funds receive a basic layer of security, and the state debt is internal, fixed, and predictable.
These bonds currently make up about 30% of the funds in a worker’s pension portfolio, down from about 90% when they were at their height. The remaining funds are in markets and therefore unregulated by the state. The Arrangements Bill proposes to do away with this system completely and replace it with a kind of state insurance for part of the pension. This is a sea change in the pension arena.
For workers, this change brings with it an increase in risk: instead of a bond that the state has committed to pay out with a predetermined interest rate, they instead get an insurance mechanism that is easily tinkered with to the workers’ detriment: for example, the insured portion of the pension fund may be reduced.
The state will get cheaper loans, but will also carry more risk. Beyond that, this move is another retreat from the model of nationalized capital to one of globalized capital. In the nationalized model, there is a close connection between workers and the government: the workers lend money to the government, who use that money to make investments for the workers. In the globalized model, on the other hand, profit considerations are the only factor in decision making, both when it comes to raising debt and when it comes to making decisions about investments. A change of such significance must not pass without more serious negotiations.
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Regulating the regulators
The establishment of the new regulatory authority is a drastic decision, according to which all regulators in all Israeli government bodies will be subject to a single authority, which will have the jurisdiction to delay or invalidate a new regulation. The regulatory authority will be given a monopoly on determining the costs of the changes in each and every area.
The way regulation works in Israel today undoubtedly requires reform. Right now, regulators are spread among hundreds of different government bodies. It makes sense to set common criteria for regulation and create a mechanism for feedback on the operation of these various bodies. However, it seems that the main goal of the new regulatory authority is not reform per se, but rather to reduce regulation to an absolute minimum. The regulatory authority would replace the knowledge and expertise held by each body with a one-size-fits-all reliance on international standards.
For a decision that so seriously changes the way the state protects the public interest, it is appropriate to make time for discussion outside the bounds of the Arrangements Bill.
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Tougher restrictions on state-guaranteed mortgages
Rising housing prices are making the dream of homeownership a distant one for Israelis in the middle and lower classes, and it is precisely now that the Finance Ministry is choosing to do away with one of the tools that can address the problem: state-guaranteed mortgages. This program allows lower-income Israelis to borrow money from the government at competitive interest rates in order to purchase a home.
The proposal in the Arrangements Bill will tighten the conditions for joining the state-guaranteed mortgage track so that only a small portion of the population will be eligible. The Treasury argues that low interest rates in the housing market have made it so that the program is far less impactful, and that the tightened eligibility will therefore not have a significant effect.
In past years, when the average interest rates in the market were between 7% and 8%, borrowers in this program received a significant interest reduction of up to five percentage points. Last year, the average interest rate was only 2.3%, and therefore, borrowers who were eligible for the discounted 1.8% rate benefitted less significantly.
Despite the low interest rates on the market, the program still has many benefits. The state provides borrowers with an “insurance certificate” that is particularly useful for lower-income families, for whom mortgage payments might prove a financial hardship, and provides them with additional flexible terms.
This tightening of eligibility amounts to a 200 million shekel cut to the mortgage guarantee program, aimed directly at the less-well off sectors of Israeli society. In today’s housing market conditions, the mortgage guarantee program needs to be expanded rather than reduced.
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Impairing the hospital budget
Even a global pandemic failed to make health a major issue in the new budget, and Health Minister Nitzan Horowitz was forced to stick his neck out in order to secure the terms promised to him in the coalition agreement.
The health system in Israel is operating at a deficit and is in need of reform. But the solution presented in the Arrangements Bill is simply to transfer the deficit from one body to another by increasing the percentage of cost of care that hospitals, rather than HMOs, are expected to cover. What’s more, the budget for hospitals is set to increase at a lower rate than the increase in the population and the budget has no mechanism to address the aging population, which will result in a further breakdown of the already stressed system.
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Import regulations reform
The proposed import regulation reform would completely change the way the state monitors products imported into Israel. Instead of a preliminary inspection of the products and the documents confirming their approval by various standards setting organizations, imports will be approved on the basis of declarations only, with all enforcement being retrospective.
The purpose of the reform is to make importing to Israel more affordable, but the reform puts the wellbeing of the Israeli consumer at risk. A breakdown in import regulations to Israel could be life-threatening, especially in such industries as food and cosmetics. In addition, the enforcement system that is supposed to retroactively enforce the regulations does not exist, so it is unclear how the state is supposed to regulate the safety of imported products.
