The State Budget

Lexicon of Terms

The Arrangements Law

Lexicon of Terms

The State Budget

The following are the characteristics of the state budget, as set forth by the Basic Law: The State Economy:

The budget will be determined through legislation;
The budget will be set annually and include all projections and plans for the government's expenses;
The government will relay the budget bill to the Knesset at a predetermined time set by the Knesset or by a committee appointed to that matter, but no longer than 60 days before the beginning of a fiscal year;
The budget bill will be detailed;
The detailed budget for the Ministry of Defense will not be presented directly to the Knesset, but to a joint committee made up of the Finance Committee and the Foreign Affairs and Defense Committee;
The budget bill will be presented together with an estimate of its anticipated funding;
Together with the yearly budget, the government will present a budget plan for the following two years, on which the future budget bills will be based.

As stated in the Basic Law: The Government, the government is the executive branch of the state, and the budget specifies the expenses needed to execute the Knesset's legislation, treaties, and agreements signed by the government, return of debts and payment of salaries and pension in accordance with its labor agreements, as well as expected commitments from the government's economic policy. The Budget Law is drafted according to assessments of economic factors for the following year, while upholding the limits provided by the Deficit Reduction and Budget Expense Limits Law – 1992. This law stipulates that the deficit rate in the budget will not exceed a certain level from the expected gross domestic produce of the budget year, and that the increased rate of the budget will not exceed a rate set in the law. The Budget Law is arranged in this way for two purposes: To reduce the state budget's influence on the gross domestic product and to decrease the public debt.

The budget is financed annually by the following sources: Direct taxation (such as income and commercial taxes), indirect taxation (such as VAT and sales tax), tolls, national and international loans, grants (such as American aid) and income derived from privatization (corporations and banks).

The Budget Law is debated like any other bill and must pass three readings. If the bill is not approved in second and third readings at the start of the budget year, the government is permitted to extract a monthly sum equal to a 1/12 of the prior year's budget, updated by the current consumers' price index. Finances are intended initially to cover the state's obligations through legislation, signed agreements and treaties; the remainder will be used by the government to provide vital services and perform actions included in the previous budget.

A budget bill includes both the "regular budget" – the government ministries' continuous actions, and the "development budget" – intended for investments and the development of the ministries. Each article in the bill is similar to an article in any regular bill, while usually each government ministry is given an independent article. During the year, it is possible to transfer funds from one article to another, provided that the Finance Committee approves, that it is done in accordance with the procedures set in the Budget Foundations Law, and that it is adapted to ongoing changes and developments.

The Budget Foundations Law stipulates that the Minister of Finance will present the Finance Committee with an update on the deficit and its funding at each yearly quarter. As the first six months of the budget year pass, the minister presents the Knesset with a report on the state income, expenses (including those dependent on future income) and the number of appointments to public offices.

If a budget bill is not passed within the first three months of a fiscal year, it will be considered as if the Knesset decided on its termination and early elections will be held.

The Arrangements Law is passed together with the budget law since 1986, specifying bills and amendments to laws that are needed in order to fulfill the government's economic policy.

The state budget is preset almost in its entirety, since it includes the funding of all legible laws and financing obligations set in previous years. Therefore, torrid debates at the Knesset are mostly held on the Arrangements Law, due to its inclusion of reforms, cutbacks, and the freezing of laws.

(October 2007)

The State Budget for the years 2009-2010 was legislated as a 2-year budget in the Basic Law: State Budget for 2009-2010 (Special Instructions) (Temporary Order). This unique budget will set up the framework of governmental expenses for each of the two years, but they will be passed as one law. According to the rationalization of the law, the government requested to accommodate the budget to the circumstances surrounding the global economic crisis and its effect on the Israeli economy, and to create stability for a period beyond one year. Similarly, the Basic Law: The Knesset was also ammended to allow the 32nd Government a longer time period for the ratification of the 2009-2010 budget – 106 days rather than 45.

(May 2009)