Fiscal deficit widens to 8.1% as state continues to shell out billions on war effort
Deficit climbs for fourth month above 2024 government budget ceiling of 6.6%, as spending on the war with Hamas reaches almost NIS 90 billion
Sharon Wrobel is a tech reporter for The Times of Israel.
Higher ongoing military and civilian spending to fund the months-long war with Hamas and the heated conflict with Iran-backed Hezbollah have pushed Israel’s budget deficit to 8.1 percent of national output, preliminary figures released by the Finance Ministry on Thursday showed.
The country’s fiscal deficit widened to 8.1% of gross domestic product (GDP) in July over the prior 12 months from 7.6% in June as last month’s government expenditure of NIS 49.4 billion ($13 billion) exceeded state revenue of NIS 40.9 billion.
July marks the fourth month that the deficit tops the government target ceiling of 6.6% of GDP set for the end of 2024 as war costs since the outbreak of the fighting triggered by the October 7 Hamas onslaught ballooned to NIS 88.4 billion. Israel posted a budget deficit of 4.2% in 2023.
“The increase is mainly due to high spending on defense and security as well as by civilian ministries because of the war in addition to rigid payments resulting from agreements,” the Finance Ministry noted in the monthly report.
Despite making moderate spending cuts in the 2024 revised budget, Israel’s right-wing coalition has left in place billions of shekels in discretionary funds made available to political allies under deals reached in coalition talks ahead of the government’s formation in late 2022.
Amid the growing deficit, in July, the government allocated hundreds of millions of shekels in “surplus” coalition funds to state ministries. Despite strenuous objections by opposition lawmakers, the transfer of hundreds of millions in coalition funds to various ministries was approved.
Looking ahead, the Finance Ministry said it expects the deficit to continue to expand until the end of September citing higher war expenditure. From the fourth quarter, the deficit is projected to be on a downward trend and converge to the target of 6.6% by the end of 2024, subject to unexpected war developments, the ministry said.
Speaking at the Knesset Finance Committee on Wednesday, Finance Ministry official Golan Badichi, cited three risks to meeting the deficit ceiling of 6.6% set for all of 2024. The first is an extension of state funds for the accommodation of evacuees which are set to expire at the end of August, the second is any delay in the receipt of US aid passed in April, and the third is an escalation on the northern front with Hezbollah.
“To the extent that these risks do not materialize, we will be able to remain within the deficit framework without breaching it,” said Badichi. “Should the government decide to extend aid for evacuees, or if the flow of US aid will not arrive as planned in the budget, it will either need to change the order of [spending] priorities or it will be necessary to change the ceiling of the deficit.”
As Israel braces for a potential attack by Iran and Hezbollah, and the duration and extent of the war is uncertain, the government could be facing billions of shekels in additional military and civilian spending in the coming months, including the payment of army reservists, and the evacuation of hundreds of thousands of residents from the south and north of the country and their relocation to hotels.
The July deficit widened from 7.6% of GDP in June, 7.2% in May, and 7% in April. Government expenditure amounted to NIS 49.4 billion last month, taking spending since the start of the year to about NIS 350 billion, an accumulative increase of 33% compared with the same period in 2023.
The July figures show that state revenues amounted to NIS 40.9 billion, up from NIS 39.1 billion during the same month last year. Total revenue from the beginning of the year amounted to about NIS 277.8 billion compared to NIS 269.4 billion in the corresponding period last year, marking an increase of about 3.1%.
Net income from real estate taxation, which rose 24% to NIS 1.5 billion in July versus the same month in 2023, is still down 12% since the start of the year. The collection from purchase taxes jumped by 46% in July year-on-year, while income from property betterment taxes fell by 8% year-on-year.
