Gov’t Set to Exceed 2013 Tax Revenue Target by NIS 6b

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Tax revenues are on track to surpass the government's target this year by NIS 6 billion, following the Israel Tax Authority’s report on Tuesday that it collected 7.7% more after inflation in the first nine months of this year than it had in the same time in 2012.

The authority said tax revenues reached NIS 180.4 billion. In September alone revenues reached NIS 21.7 billion, 15.4% more than a year earlier.

As a result, tax experts and Finance Ministry officials estimated that the government would collect NIS 240.5 billion in taxes this year, compared with a target set in the budget of NIS 234.6 billion. The target for 2014 is NIS 257.6 billion.

The tax figures are rare source of good news for Finance MInister Yair Lapid, who undertook a series of tax hikes and budget cuts after he took office last spring that earned him sharp criticism and a loss of political support.

The tax authority said revenues between January and September exceeded its forecast by NIS 5.5 billion, including NIS 3.3 billion due to one-time transactions such as the second tranche of the sale of Iscar to Warren Buffett's Berkshire Hathaway. Another NIS 500 million was due to timing differences arising from the holidays.

But the yawning gap between actual and forecast collection is also due to the very conservative tax revenue forecast treasury officials had made for the year. That is because they were stung by a massive miscall in the other direction in 2012, when they forecast revenues of NIS 232.3 billion only to end up with NIS 218.1 billion.

The number of Israelis in the workforce is higher than projected and unemployment is lower, which has given an unexpected boost to income tax revenues, officials said. The level of household expenditures has also been higher than they projected.

The government's tax hikes in the second and third quarters also greatly contributed to the increase, raising revenues by NIS 8.6 billion this year, of which NIS 3.2 billion came from direct taxes, mostly income tax, and NIS 5.4 billion through indirect taxes such as value-added tax. The increases are also expected to help boost fourth-quarter revenues.

Rates to rise

On January 1, income tax rates for individuals and companies are scheduled to rise, which treasury officials say will boost government revenues by another NIS 6 billion for the year. There are also plans to boost revenues by NIS 2.1 billion in 2014 from a crackdown on the shadow economy, although the fruits of that effort are likely to show in actual tax revenues only in 2015.

On the other side of the equation, however, is that the tax authority raised just NIS 1 billion in taxes from so-called “trapped” corporate profits, a third of what it had expected.

Since March, monthly tax collections have been higher on an inflation-adjusted basis than in the previous year across all categories of taxes.

According to Finance Ministry figures, NIS 9.9 billion was collected in September through direct taxes, for an 11.1% increase in real terms from a year ago. Direct taxes totaled NIS 88.3 billion from January through September, up 6.8% from the same time last year. Revenue from indirect taxes jumped 19.2% from a year ago, an 8.6% year-on-year increase.

Meanwhile, government expenditures in September were lower than expected, which will likely help put the 2013 budget deficit under target. The treasury said the operating deficit was a mere NIS 900 million, bringing the total for the first nine months to NIS 14.1 billion, less than a third of the NIS 45.65 billion target. The deficit for the same period in 2012 was NIS 20.2 billion.

The cumulative deficit until September continued declining and totaled NIS 32.9 billion, 3.2% of gross domestic product, much lower than the 4.65% official government deficit target for the year.

The government spent NIS 27.2 billion in September, including NIS 4.9 billion on interest and NIS 22.2 billion on operational expenditures. Since the beginning of the year government operations have totaled NIS 178.2 billion, 5.1% higher than in the previous year despite a planned 8.8% increase approved in the 2013 state budget.

The government paid out NIS 9.7 billion in principal on borrowings in September than it raised by issuing new bonds.

Yair Lapid at the changing of the guard at the Finance Ministry: His first speech as finance minister. Feb. 21, 2013.Credit: Oren Nahshon

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