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March was the 15th month in a row in which tax revenues dropped from the year before. The unprecedented fall is worrying Prime Minister Benjamin Netanyahu and his finance minister, Yuval Steinitz.

Tax receipts for the first quarter of 2009 were down 17.4% from a year earlier to NIS 42.4 billion, the Accountant General's division in the Finance Ministry said yesterday.

The budget deficit for March alone, for government operations in Israel and abroad, came to NIS 3.3 billion, while the total for the quarter was NIS 4.8 billion. March numbers were down 14.5% from last year.

March was also the 15th month in a row where direct taxes such as income and real estate taxes fell. Even worse, it was the third straight month the drop was more than 20%.

This is a real crash, an avalanche. If unemployment continues to rise over the next few months - and it will - and if wages go down - and they will - the crash will only get worse. Even on the side of indirect taxes such as VAT and customs duties, where the situation is somewhat better, March was "only" the sixth month in a row of lower collections.

Without tax revenues, the state is forced to cut spending. Ehud Olmert's cabinet approved the 2009 budget back in August 2008, but it never passed in the Knesset. The budget was based on the optimistic forecast that tax revenues would reach NIS 202.7 billion this year. The cabinet made its decision before the full force of the world economic crisis hit Israel. In reality, tax revenues for the first quarter were only NIS 42.4 billion, which would mean only NIS 169.6 billion for the full year if the trend continues. This would leave the state NIS 33.1 billion short if nothing changes.

So what can you do when revenues are lower than expected? Cut spending and borrow money. This is exactly what Netanyahu's government will have to do.

Over the next few weeks we will hear, time after time, of the treasury's plans to cut the budget, including in social-welfare ministries, as well as to cut salaries in the public sector. What we will not hear about is a cut in the defense budget, since Netanyahu has already caved in to the pressure from Defense Minister Ehud Barak.