Fiscal state deficit widens to 1.3%, exceeding government target

Figures show government spending has risen 9.4% since start of the year, while state income from taxes declined 4.3% year-on-year, led by sharp drop in real estate taxation

Sharon Wrobel is a tech reporter for The Times of Israel.

Finance Minister Bezalel Smotrich speaks during a press conference at the Ministry of Finance in Jerusalem on August 9, 2023. (Chaim Goldberg/Flash90)
Finance Minister Bezalel Smotrich speaks during a press conference at the Ministry of Finance in Jerusalem on August 9, 2023. (Chaim Goldberg/Flash90)

Israel’s fiscal deficit widened to 1.3 percent of GDP, or NIS 23.1 billion ($6 billion), in August over the prior 12 months, as state revenue from taxes continued to slide and government expenditure increased, preliminary figures released by the Finance Ministry on Sunday show.

The deficit has swelled above the government’s fiscal deficit target for this year of around 1.1%. In recent months, economists have been warning that the country will find it challenging to meet the target for this year amid expectations for a continued decline in income from taxes as the global economy is facing a slowdown and higher borrowing costs are hampering the pace of real estate deals. Adding to this is concern that uncertainty over the planned judicial overhaul will stifle foreign investment and hamper local economic activity.

The government in 2022 posted the first budget surplus in 35 years of 0.6% of GDP as state revenues rose 4.8% to NIS 468.5 billion, benefiting from an exceptionally high increase in the collection of tax income.

The August figures showed that state revenues amounted to NIS 33.7 billion down from NIS 39.2 billion in July, marking a decline of 14% month over month. Meanwhile government spending in August swelled to NIS 39.5 billion from NIS 35.7 billion during the same month last year.

Since the start of the year, state revenues dropped 3.9% and state income from taxes fell 4.3% year-over-year. Government spending has jumped 9.4% to NIS 302.9 billion in the first eight months of 2023 year-on-year. That’s higher than the 7.6% increase in government spending accounted for in the state budget.

Collection from state tax income in August totaled NIS 32.6 billion, down 7.2% compared with the corresponding month last year, according to data published by the Israel Tax Authority. Since the start of the year, tax income fell by 7% year-on-year. Direct taxes declined by about 11% in August versus the same month in 2022 and by 9.3% in the first eight months of this year compared with the corresponding period last year.

Israelis picnic in a field outside Rehovot, January 23, 2021. Buying a slice of agricultural land outside a city in hopes it gets rezoned is one way to get into the real estate game without a major investment, though it comes with substantial risks. (Doron Horowitz/Flash90)

The drop in direct tax revenues derived mainly from a sharp decline in real estate tax revenues and corporate taxes and an increase in tax refunds, the Tax Authority said. Net income from real estate taxation almost halved to NIS 1.2 billion in August from the NIS 2.2 billion collected during the same month in 2022. The figure marked the lowest level since the start of 2021 for a the third consecutive month.

The collection from purchase taxes plunged by 45% in August year-on-year and income from property betterment taxes fell by 54% year-on-year.

On an accumulative basis, income from real estate taxes has dropped by 43% since the start of the year.

Israel posted deficits of 4.4% of GDP in 2021 and 11.3% in 2020 as the government introduced a NIS 196.3 billion ($53 billion) multi-year economic aid spending plan to help the economy deal with the coronavirus pandemic.

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