The government's budget deficit swelled to 4.2% of gross domestic product in the 12 months through the end of November 30, putting it way above the ceiling set months ago by the cabinet, the Finance Ministry said on Wednesday.
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The NIS 39.1 billion in overspending means the deficit is nearly a full percentage point above the 3.4% deficit target for 2012, and more than double the original ceiling envisioned when the Knesset approved the budget last year.
Government spending is expected to grow by 8.3% for the year, well above the target of 4.9%. Meanwhile, as economic growth has slowed this year, the Finance Ministry has lowered its projected tax revenue for the full year to NIS 221 billion, but now it appears Finance Minister Yuval Steinitz will not be able to meet the target. And the ministry's revised forecast for tax receipts between January and November was NIS 3.3 billion higher than what the state received.
Although the cabinet took measures over the summer to raise revenues and cut spending, Israel's fiscal woes have become so severe that Prime Minister Benjamin Netanyahu's government failed to find a coalition majority to approve a 2013 budget and opted for elections instead.
As a result, an austerity budget will automatically go into effect January 1 under a law that requires the government to operate according to its 2012 fiscal framework. Consequently, the Tel Aviv Stock Exchange largely shrugged off the news and government bond prices remained steady. "There was a decline in tax receipts in November because of the war," a senior source in the capital markets added, "and the market expects that in December the collection figures will correct themselves and Israel will get back on track."
The source noted that since the country will start the year without a 2013 state budget and operate instead on the basis of the 2012 budget figures, this will also rein in spending.
The deficit for November alone was about NIS 3 billion, and state tax revenues for the month were 2.2% lower, after correcting for inflation, than they were in November of last year. The major reason that November tax revenues fell short of the forecast was an 11.7% decline in indirect taxes such as value- added tax and customs duties, total receipts for which were NIS 8.3 billion for the month. The drop was caused by weaker revenues from import taxes, apparently due to the rocketing in areas of the south last month, and the Pillar of Defense military operation in Gaza that the Israel Defense Forces launched.
The state took in NIS 17.4 billion in taxes last month, which was lower than the ministry's projections. At NIS 200 billion, tax revenue for the first 11 months of this year is actually 1.7% higher than for the comparable period last year, but short of projections.
November's revenue from direct taxes, which is mainly income tax, came in at NIS 8.6 billion, which in real terms was 9.2% higher than November of last year and for the first 11 months of 2012, direct tax receipts were about NIS 98 billion, which is 2.4% more than the same period last year. As noted, however, direct taxes - at least when corrected for inflation - declined for the month.