The burden of government tax - the ratio of tax revenues to the GDP - will go up 0.7 percent in 2003, to 31.4 percent, a similar figure to that of 2001.

Tax collection in 2003 will total NIS 157.9 billion - 3.4 percent more than the estimated collection in 2002 in real terms, the Finance Ministry estimates.

The treasury's tax revenue forecast assumes 1 percent economic growth and an addition of NIS 1.9 billion thanks to various legislative changes, including the income tax reform, the hike in VAT and in the price of fuel and cigarettes. Capital gains are being taxed while tax on labor is being reduced. The total tax burden will only go down in 2008.

In 2001 the state's tax revenues fell 1 percent in real terms, and they are expected to drop another 4 percent this year. The original tax collection target for 2002 was NIS 154 billion, but was later revised to NIS 148 billion.

The treasury explained that the policy in 2002 and 2003 has two objectives: maintaining fiscal discipline and encouraging growth. While these goals may seem to be contradictory, tax changes like the reform in real estate tax and the income tax reform may slash revenues in the short term, but over time, such reforms contribute to growth and thus enhance tax revenues as well.

According to the treasury's projections, the government will collect NIS 85.3 billion on income and real estate tax, 2.3 percent more in real terms compared to the revised 2002 target of NIS 80.8 billion.