Israel's Budget Deficit Widens Abruptly in October

But treasury says it still expects to beat projections for the year, points to higher tax revenues and decreased spending.

The trend toward a shrinking budget deficit came to an abrupt halt last month when the government overspent by NIS 4.6 billion, the Finance Ministry reported on Sunday.

Nevertheless, the deficit over the past 12 months amounted to just NIS 34.3 billion, equal to 3.3% of gross domestic product, the treasury said. That puts it well under the deficit target of 4.65% set in the 2013 spending plan.

That means that in the first 10 months of the year, the deficit reached NIS 18.6 billion, down from NIS 23.2 billion the same time in 2012, the treasury said.

Collections by the Tax Authority reached NIS 193.4 billion in January-October, up 6.7% after discounting for inflation from NIS 178.3 billion for the same period in 2012 and NIS 4.4 billion more than the treasury had forecast when it prepared the 2013 budget.

The surprise rise in tax revenues and the narrowing deficit have eased some of the pressure on Finance Minster Yair Lapid. His Yesh Atid party scored a big victory in the January general election earlier by promising to improve the lot of the middle class, but Lapid has been forced to raises taxes and cut government spending.

Treasury officials have nonetheless said it is premature to talk about easing some of the other austerity measures slated for 2014.

Those concerns were borne out by the October tax figures. According to an analysis by the Finance Ministry, tax revenue has stabilized in recent months. Furthermore, of the NIS 4.4 billion in unexpected revenues in January-October, NIS 3.3 billion is due to one-time factors, mainly due to the decision by some companies to pay taxes on so-called captured profits.

The NIS 1.1 billion in surprise tax collections came from increased revenues from direct taxes, such as personal and corporate income tax and land taxes. Indirect taxes, mainly the value-added tax and customs, were actually NIS 350 million below forecasts, the Finance Ministry said.

Officials said on Sunday the government would probably collect from NIS 4 billion to NIS 5 billion more than projected for 2013, or some NIS 234.22 billion, including NIS 3 billion from taxes on captured profits.

Government revenues from direct taxes rose 7.3% after inflation in the first 10 months of the year, compared with the same time in 2012, to NIS 97.5 billion. Indirect taxes rose 6.3% in the period to NIS 94.8 billion. Of that increase, NIS 3.6 billion was due to increases on direct taxes and NIS 6.1 billion from higher indirect taxes, most notably an increase in VAT.

In October, the direct-tax take reached NIS 9.3 billion, a jump of 15.5% after inflation from a year earlier. Indirect tax revenues fell 14.5% to NIS 7.8 billion, with VAT collections down 14% despite a 1% rise in the rate earlier this year. Capital gains tax revenue were ahead 129% from the parallel month, at NIS 365 million.

On the expense side, spending by government ministries climbed 5.5%, to NIS 198.5 billion, in the first 10 months – less than the 8.8% rise projected in the 2013-14 budget. Spending by civilian ministries rose 6.7% while defense spending rose just 2.1%, the treasury said.

Ofer Vaknin