Israel’s fiscal deficit widened to 0.3 percent of the GDP, or NIS 4.9 billion ($1.35 billion), in April over the prior 12 months, as state revenue from taxes continued to slide, led by a slump in real estate tax collection, according to preliminary figures released by the Finance Ministry on Monday.
The development came after March figures showed that for the first time in nine months, Israel had swung to a deficit of 0.01%, prompting economists’ warnings that the country will find it challenging to meet its fiscal deficit target for this year amid expectations for a continued decline in income from taxes as the global economy is facing a slowdown.
Adding to this is concern that uncertainty over the planned judicial overhaul will hamper local economic activity.
Meanwhile, Prime Minister Benjamin Netanyahu’s government has been working hard to pass the state’s 2023-2024 budget by a May 29 deadline, with NIS 5 billion ($1.37 billion) of that budget reportedly funneled to meet Haredi demands as part of the ultra-Orthodox parties’ coalition deals with Likud.
Monday’s figures showed that although total state revenues increased moderately to NIS 40.6 billion versus NIS 40.4 billion during the same month last year, state income from taxes declined 5.4%. Since the start of the year, government revenue generated an accumulative NIS 161.2 billion, marking a 3.2% decline compared to the corresponding period in 2022, while state expenditure jumped 6.9%.
Commenting on the data, Finance Minister Bezalel Smotrich, who fully stands behind coalition deals that will funnel billions of shekels to the ultra-Orthodox parties, rebuffed calls for the need to reopen the budget and make cuts.
“All the talk about the need to open the budget and make cuts, the talk about the need to raise taxes, God forbid, are nothing but lies, which are part of a media campaign against the government and are designed to scare the public,” Smotrich said. “We are concluding the first four months of the year meeting our collection goals and even more than that.”
“Yes, there is a small decline compared to 2022, which was an unusual year,” he added.
Income from taxes dropped by an accumulative 4.3% in the first four months of the year versus the same period last year as tax income from real estate deals fell 35%, pointing to further signs that Israel’s booming housing market is cooling down amid a higher interest-rate environment and a slowing economy.
Most notably in April, net income from real estate taxation slumped 49% to NIS 1 billion compared to NIS 1.9 billion in April 2022. During the same month, income from the collection of property appreciation taxes dived 56% and income from purchase taxes dropped by 45%, compared to April 2022.
Total government expenditure in April stood at NIS 37.2 billion in April versus NIS 32.4 billion recorded during the same month in 2022. Since the beginning of the year, government expenditure increased by 6.9% to an accumulative NIS 143.8 billion versus NIS 134.5 billion during the same period last year.
For 2024, the Finance Ministry targets a budget deficit of 0.8% of GDP. That is after 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 tax revenues.
Israel posted deficits of 4.4% of GDP in 2021 and 11.3% in 2020 as the government introduced a NIS 196.3 billion multi-year economic aid spending plan to help the economy deal with the coronavirus pandemic.