Remarks by the Bank of Israel Governor at the Cabinet meeting on increasing the budgets for 2020 and 2021 in order to prepare the education system for the 2020/21 school year
The proposal to increase the education budget as presented today for government approval is apparently necessary due to the circumstances. Opening the school year properly in September is very important for learning, for reducing the negative social impact of a lack of proper frameworks, and for the ability of parents—primarily those of younger children—to go to work. Alongside this, the necessary adjustments in order to enable safe learning while minimizing the risk of infection have significant one-time costs that must immediately be budgeted.
While the need to increase the education budget is clear, it is important to distinguish whether it is necessary to increase the budget framework—even on a one-off basis—in order to finance it. In recent months, the government has made decisions that have increased the permitted expenditure in 2020 by about NIS 81 billion, and the permitted expenditure in 2021 was recently also increased by more than NIS 25 billion. Before deciding to increase the budget framework, it is advisable to properly examine the frameworks that have already been approved in order to make sure that there is no expectation of underperformance, and that insofar as any underperformance is expected, it is preferable to reallocate the sources that have already been approved and not to continue increasing the expenditure framework.
Dealing with the COVID crisis requires—and will continue to require—many budgetary resources. Israel, like many other countries, has so far benefited from the confidence of the markets in financing the budgetary needs resulting from the crisis. In order to maintain this confidence, it is important that the government make sure that the expenses in dealing with the crisis are examined carefully and that the money is designated for purposes derived from the crisis and the programs that contribute to the market dealing better with the challenges posed by the crisis, and particularly to ensure post-crisis growth. The market test does not deal only with some numeric parameter or other, such as the debt-to-GDP ratio or the deficit, but also with the way in which governments and countries behave and allocate budgetary resources in a crisis. In this context, it is worth remembering that we cannot stretch out the deficit without limits, and it is therefore advisable that the use of already-approved budget frameworks be examined first. In this view, it is advisable to make a decision on an overall program to increase demand, employment, and acceleration of the economy, instead of making the decisions in stages while using budgetary exceptions.