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Going rogue: How the Ministry of Finance plays by its own rules

When it comes to getting its way, the Finance Ministry will go to no end to force other governmental bodies to bend to its will. 

By Hagai Kalai

Like public authorities in Israel, the Ministry of Finance aims to promote public interest to the best of its understanding. However, like all public authorities, the ministry suffers from a narrow perspective: it gives higher value to its own policies, while undervaluing the importance of proper administrative process. Yet, while most public authorities try and promote their agenda through the standard legitimate government mechanisms, the Ministry of Finance has developed a long line of sophisticated mechanisms that enable it to avoid the “burden” of proper administrative process. For example, the mechanism of budgetary adjustments during a budget year has been used for many years order to promote a hidden budget – one that is not truly supervised by the Knesset.

Similarly, the Ministry of Finance does not hesitate to allocate public funds for campaigns against other governmental offices, such as the Ministry of Environmental Protection, when it dares to hold opinions that are not aligned with the Ministry of Finance’s perspective (or even worse: when those opinions are preferred by policymakers to those offered by the Ministry).

Among this wide variety of mechanisms used by the Ministry of Finance to force its opinions on other public bodies, is one used to reduce the power of the courts.

Finance Minister Yair Lapid in the Knesset, July 29, 2013 (Photo: Tali Mayer/ Activestills.org)

Finance Minister Yair Lapid in the Knesset, July 29, 2013 (Photo: Tali Mayer/ Activestills.org)

As a general matter, the court will not intervene in decisions based on economic analysis, even if said analysis is deeply flawed. The court will intervene only in one of three situations: if the decision leads to non-proportional violation of human rights, contradicts the law or if the decision is extremely unreasonable.

Even this limited court supervision, it seems, is too much for the Ministry of Finance. Thus, a solution was found. Instead of arguing in favor of its policies before the court, the ministry prefers to force its policies upon the court by enacting them while the legal process is still standing, often in direct violation of the court’s order.

This took place surrounding the discussions surrounding the budget for public medical centers. Though the Supreme Court ordered the state to adjust the funding formula for the public medical centers in accordance with a law passed in 2000, the medical centers had to petition twice more, and only after a second decision by the Supreme Court in its favor was the Ministry of Finance willing to adjust the formula as required (it did not, however, agree to compensate the medical centers retroactivity). Another example concerns the case of privatization of prisons. After the Knesset allowed the building of a privately-owned prison, the case came before the Supreme Court. The court clarified to the ministry that the law allowing the building of a private prison is highly problematic, and that it will likely be ruled unconstitutional. Therefore, the court asked the state to stop any action taken to build the prison until a ruling comes out.

The Ministry of Finance did the exact opposite. It asked the court to refrain from ordering it to stop the constructions, and immediately signed a contract with the private contractor, which promised extensive compensation in case the law would be struck down by the court. Simply put, the ministry tries to create an artificial cost to the court’s decision, forcing it to accept its policies. When the law was struck down, the Ministry of Finance publicly attacked the court for creating high costs for the state. The only profiteer from the whole story was private contractor Lev Leviev.

During the last weeks we have once again witnessed the use of those mechanisms by the Ministry of Finance. On September 10th I filed a petition to the Supreme Court concerning the constitutionality of the new Public Broadcast Law, passed in July 2014. I argued that the state cannot violate the general labor laws by enacting a specific law that enables it to collectively fire all public broadcast employees and hire young, cheap contract workers instead. I further argued that any change in the employment terms should be achieved through the regular labor law mechanisms. A law that directly intervene in the labor relationship in a specific workplace has a discriminatory effect, while violating the constitutional rights to freedom of contracts, freedom of association and the right to property.

The Supreme Court ordered the state to respond to the petition within 10 days. The Ministry of Finance did not hesitate: It immediately announced that the Tel Aviv facility will be closed and sold off, and that all employees will be required to relocate to Jerusalem – an additional 3-4 hours of commuting a day. All this in order to immediately sell the facility and prevent the possibility of the court’s interference. The fact that the facility in Jerusalem is not prepared for hundreds of new employees – the difficult outcome for the employees, and the lack of any procedure to sell the asset in Tel Aviv – did not disturb the Ministry of Finance, which tried to precede the court and create facts on the ground prior to the verdict.

One should note that in this case, using the law to sell the Tel Aviv facility was extremely important to the Ministry of Finance, as it was the main reason to enact the law in the first place. The ministry has previously tried to sell the facility, and the court ordered it not to go through with the sale, as there was no proper process to assess the profitability of the sell. This time the ministry hopes to complete the sale before the court can examine its legality. The only question that remains: Who profits from this quick sale? Like in the last round, the Ministry of Finance was “advised” to sell the facility by commercial “consulting” agencies. One wonders who else those consulting agencies work for, and how many tycoons advised by them will receive the same great advice and make great profits.

Hagai Kalai is an attorney who represents Kol Israel workers in their petition to the Supreme Court. This article was first published in Hebrew on Haokets.

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    1. Kolumn8

      Another corrupt organization insisting it has a right to be subsidized by the Israeli taxpayer and hiding behind courts to do so. We have enough of these. I can’t wait until the entire staff of this organizations and many others, such as the electricity company and the ports, are forced to compete in the free market against profit-driven enterprises.

      The whole idea of organized labor in the public sector is a travesty that was inflicted upon us by years and years of corrupt quasi-socialist governments and we have yet to recover from it. What these bodies do is pure extortion. They extort the taxpayers and if they don’t get what they want they go on strike or find some other means of getting around the basic standards for efficiency and accountability enforced in the private sector through competition.

      Reply to Comment
      • Philos

        And people ask what’s the difference between American Jews and Israelis? Your statement just about sums it up. The social democratic model and strong labour rights is still the most popular political-economic model survey after survey has shown much to the chagrin of Bibi and his Yank supporters

        Reply to Comment
        • Kolumn8

          American Jews are broadly Democrat and support the social democratic model. Israeli Jews overwhelmingly hate the inefficiency and corruption that takes place in public sector unions and public companies. If the former were banned and the latter privatized everyone would be better off except for several thousand overpaid managers and employees who would have to compete in the open market with the rest of us.

          Bibi’s reforms from 2003 are widely considered to be a success by Israeli society. Outside of the margins there is no real opposition in Israel to privatizing public companies, limiting the power of the labor unions, and creating more competition in the Israeli economy. The protests that one does see are largely a reaction to the high prices caused by the inefficiency, lack of competition, corruption, and stifling overregulation that characterizes the Israeli economy. All of these are the wonderful artifacts left behind by the socialist or “social democratic” model as practiced in this country until recently. Thank god we are slowly working on resolving them.

          Reply to Comment
    2. Philos

      And in spite of being lorded over by an elite that cares little for us too many Israelis will shrug and their shoulders and say, “I have no other country.”

      And an elite spokesmen in the press or Knesset will add, “and the world hates you and is full of anti-Semites.”

      Reply to Comment
      • Kolumn8

        No, they will celebrate not having to pay an additional tax to finance this public monstrosity called the Israel Broadcasting Authority that insists that we owe it cushy jobs.

        Reply to Comment
    3. Average American


      Reply to Comment