Israeli Treasury estimates deficit will deepen and stand at 4% at year’s end
Israeli Treasury estimates deficit will deepen and stand at 4% at year’s end
According to the Accountant General, at the end of November the deficit in the past 12 months stood at about 3.4% of GDP, which is about NIS 62.3 billion, after an increase of 0.8% within a month - mainly due to the war. Tax revenues decreased by about 16.5%
The state of Israel's deficit in the past 12 months, as measured at the end of November, stood at about 3.4% of GDP, which is about NIS 62.3 billion (NIS 34 billion of which since the beginning of the war). This is after an increase of 0.8% was recorded in the last month compared to the end of October. These data led the Accountant General's Division to estimate that the deficit will continue to deepen into December, and that the year 2023 will end with a deficit of 4%. This is compared to the forecast of the research division of the Bank of Israel and the Chief Economist Division of the Treasury according to which the deficit at the end of the year will stand at 3.7%.
On the other hand, senior officials in the budget department told Calcalist that even after the performance data for the month of November, they are sticking to their assessment that the deficit will stand at 3.7% at the end of the year. This is a gap of approximately NIS 4.5 billion, and the debate apparently stems from different assumptions regarding the government's expenditures, its revenues and the scope of economic activity in December 2023.
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War brings both an increase in expenses and decrease in income
(Photo: IDF Spokesperson)
Most of the increase in the deficit is of course due to the war, with the war leading to both an increase in expenses and a decrease in income. The government spent about NIS 46.9 billion, compared to NIS 36.5 billion last November. About NIS 3 billion of the increase in the deficit comes from the increase in the government budget, about 5.8 billion comes from direct expenses for the war, and about another 2 billion are civilian expenses (about a billion of these expenses are going towards the evacuees). The accountant general emphasizes that "many expenses are not yet reflected in the budget, and will be reflected in December and in 2024.”
At the same time, revenues of approximately NIS 30.3 billion were recorded in November, which is a decrease of approximately NIS 4.5 billion compared to November last year. The decrease on the revenue side continues the trend that preceded the war. The war deepened it through two channels: the first is a decrease in economic activity that results in less taxes, and the second is a series of tax collection reliefs. The decrease in indirect taxes is about 2.9 billion, and in direct taxes about 1.3 billion.
In order to understand the magnitude of the decrease in tax collection, it is useful to look at the real change (which takes inflation into account) between November 2022 and November 2023. This is a decrease of approximately 16.5%, which reflects a decrease of 15% in direct taxes, and approximately 18.6% in indirect taxes. Income tax revenues for the self-employed and companies decreased by about 22% in November 2023 compared to November last year. In real estate taxes, revenues decreased by 61% compared to November of last year and amounted to only about NIS 815 million. According to the Tax Authority, this is the lowest income from real estate taxes in five years (excluding holiday months).
