money - AP - August 12, 2010
U.S. Treasury official holds up a $100 bill. Photo by AP
Text size

Flush with cash after adhering to tightened budgets in the previous 11 months and collecting tax hand over fist, the government has been spending more this December than in any month in Israeli history.

Of the roughly NIS 34 billion it's scattering on the waters in December, somewhere between NIS 5 billion to NIS 6 billion is spending that had been budgeted for 2011. Why? Because the government spent less than planned for 2010, enabling treasury officials to wax "creative" with policy, a top treasury official told TheMarker.

December is typically a heavy spending month for the government. This year, as the treasury and ministries slashed spending wherever possible in the first 11 months, a surplus accrued.

In November, government spending totaled NIS 18.2 billion; the December spending of about NIS 34 billion is almost double that. With that huge amount being dished out, the government's budget execution will be roughly 100%, which means the government is spending every penny it had planned, including deficit spending.

The "creative" policy moves were simply paying some things this year that had been budgeted for 2011. For one thing, the compensation fund for war damage suddenly received a windfall of NIS 2.4 billion for this year, rather than NIS 1 billion.

One reason to bring spending forward to this year from 2011 is to relieve the budget next year. The money is in hand and is better used now if unforeseen contingencies next year require whatever spare money the government may have.

The deficit had been running below the target for the year. Because of the global economic crisis, in its budget for 2011, the government had allowed itself to run a deficit of 5.5% of GDP. In practice, the deficit was far short of that target. Treasury officials therefore decided to ramp up spending in December, lifting the deficit to 4% of GDP rather than roughly 3%.

Tax collection bounds beyond forecast

How did the surplus accrue? In two ways. All the ministries with the exception of defense underspent their budgets for January-November 2010, the Finance Ministry says. Second, tax collection exceeded the assumptions underlying the budget for 2010.

Surplus tax collection compared with the forecast for the year ran at NIS 12 billion, which treasury officials said yesterday was an unprecedented achievement for the Tax Authority.

After the spike in spending this month, treasury officials estimate the government will end 2010 with a deficit of between 3.7% and 4.1% of GDP. As said, the deficit target for the year had been 5.5%.

The reason for that high target in the first place had been the global economic crisis, which was still raging when Israeli ministers drew up the budget for the year. For 2009 the government reported a deficit of 5.15% of GDP (NIS 39.3 billion ), while the deficit target for that year had been 6.5%.

In its latest report on the Israeli economy, the International Monetary Fund said the treasury's deficit targets - 3% in 2011, dropping to 2% of GDP in 2012 - were too high. Israel would do better to lower them to 1%, the organization urged.

Treasury officials didn't appreciate the advice. Now it seems the organization wasn't far off track: It could be done. If not for the creativity at the Finance Ministry as 2010 rolls to a close, the Israeli government would have ended the year with a deficit below 3%.