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Not a few economic indicators continue to show that Israel has been weathering the financial storms wracking the globe with distinction. Granted, economic growth slowed in the second quarter of the year compared with the first, to 4.2% in annualized terms, compared with an annual pace of 5.6% in the first three months of the year. But analysts warn against sanguinity and the tax collection figures for August are grounds for concern.

Evidently the concern has spread to the stock market. Shares of the two big banks, Hapoalim and Leumi, were hammered on the Tel Aviv Stock Exchange this week. Bank Hapoalim stock lost 6.6% of its value and Leumi retreated by 7.5% in a show of investor worries: bank stocks are considered a bellwether of the state of the economy. The logic is that if the economy is doing well, the banks will do well, and vice versa. Major investors seem to feel that the economy is evidently not doing well, or at least that it won't be.

They may find support for that view in the figures the Finance Ministry released yesterday. Declining tax revenue rates are indicative that economic activity is slowing, and the figures have been dropping. Moreover, most of the drop is in income tax paid by corporations and the self-employed.

The decline in tax collection has been accelerating. In August 2008, the state collected just NIS 14.9 billion in tax, a sharp drop of 11.5% in real terms compared with the same month the year before.

Worst hit was collection of direct taxes - income and land tax - which shrank by 20% in August of this year compared with last year. Israel hasn't experienced a monthly drop that steep (compared with the parallel month of the year before) since the high-tech crash year of 2001.

The figures of a single month could be a blip. However, seen from the start of the year, the picture is no better. During the first eight months of 2008, the treasury collected NIS 67 billion in direct tax, a drop of 13% from the same period of 2007, according to figures from the Finance Ministry's accountant-general.

As for all taxes, the treasury has collected nearly NIS 128 million from January to August 2008, a drop of 5.8% in real terms compared with the same period of 2007.

The decline in tax revenue appeared in all sectors, with the exception of telecommunications, where in fact tax collection increased by 20%.

Drop in industry

The figure for the broad industrial sector is particularly grim: tax revenue plunged by 43% in August. Moving onto the banks, for all the reports about their service-fee hikes, tax collection has dropped by 45% against August of the year before.

Industry and the banks constitute a substantial part of the state's total income from tax and their contraction is significant. This August, their combined contribution, however, had shrunk to 30% of total income tax collection, compared with 50% in August 2007.

Indirect tax revenue, meaning VAT and customs, also dropped but by a lesser degree of just over 2%, to NIS 7.1 billion in August 2008. Also, from August to January, collection of indirect taxes increased by 3.5%, to NIS 57.5 billion.

Meanwhile, another economic indicator is imports, which are indicative of demand. Imports to Israel rose by 15% in August 2008 compared with the same period of 2007 to $5.1 billion, says the Tax Authority, which is run by Yehuda Nasradishi.

Import of cars and spare parts was much higher in July this year, rising 13% to a value of $292 million (the figure for August is not available yet).