Israel Finishes 2015 With Deficit of Just 2.15% of GDP, Lowest Since 2007

State revenues $917 million higher than anticipated, while government spending was $841 million lower than predicted.

Emil Salman

The government wrapped up 2015 with a deficit of 24.5 billion shekels ($6.25 billion), representing just 2.15% of the country’s gross domestic product and making it the smallest deficit since 2007. Most of the deficit, 16.4 billion shekels, was racked up in December, according to Finance Ministry figures released Sunday.

The country began last year without an approved deficit, after Prime Minister Benjamin Netanyahu’s previous government splintered and a new Knesset election was called for March 2015. The 2015 budget, which was only passed by the Knesset less than two months ago, provided for a deficit of 31.4 billion shekels, or 2.75% of GDP. Prior to his resignation, the finance minister in the previous government, Yesh Atid leader Yair Lapid, had planned for a 3.4% deficit.

The smaller-than-expected deficit was the result of government revenues that were 3.6 billion shekels higher than anticipated and government spending that was 3.3 billion shekels lower than expected.

For purposes of comparing 2015’s 24.5 billion shekel deficit, the final figure for the 2014 government deficit was 29.9 billion shekels (or 2.8% of GDP). In 2013, the comparable figure was 3.15%. In 2008 – the year in which the global economic crisis began – the figure was 5.1%.

Direct taxes, including income tax and corporate tax, came to 135.4 billion shekels – up 8.9% in real terms over 2014. The Tax Authority also took in 126.4 billion shekels from indirect taxes (including value-added tax, purchase tax and custom duties). That was 3% higher than 2014’s figure.

In addition to taxes, military economic assistance from the United States is a significant source of revenue for the government: last year it amounted to 9.9 billion shekels.

Effective from last October, the value-added tax rate was reduced by a percentage point to 17%. That was followed, effective this month, by the reduction of the corporate tax from 26.5% to 25%. The loss in revenue from the two tax reductions has been estimated at 5.7 billion shekels over the course of a full year. The VAT reduction is thought to have cost the treasury about 800 million shekels over the final quarter of 2015.

Government expenditures last year came to 325.7 billion shekels, in contrast to the 329 billion shekels provided for in the original budget; government ministries were collectively responsible for spending 276.5 billion shekels (excluding interest payments). Spending by government ministries was actually 4.9% higher than in 2014, but the original 2015 budget provided for a 6% boost in spending over 2014.

The government shelled out a total of 30.6 billion shekels on its debt last year, compared to 31 billion shekels in 2014.

The government had 301.2 billion shekels in revenue last year. Of that, 268.5 billion shekels was derived from tax receipts, which came in 0.8% higher than projections – and even those projections were revised upward three times. In real terms, after factoring in inflation, tax receipts rose by 6.1% over 2014, even though overall economic output only rose 2.3% for the year.

The figure comes from the Central Bureau of Statistics, whose growth figure for 2015 as a whole is slightly lower than estimates from the Finance Ministry, the Bank of Israel and the International Monetary Fund. But in his weekly survey, also released Sunday, the Finance Ministry’s chief economist, Yoel Naveh, acknowledged that the economy had continued to slow over the past several years.

The statistics bureau reported lower investments in 2015 from fixed assets and the export of goods and services. Imports of goods and services were at a standstill, the CBS noted. Increases in private consumption headed off a more significant slowdown, the CBS added.

Because there was no approved budget for most of 2015, the government functioned with month-to-month spending allocations based on the 2014 budget, which put a brake on public spending.

Private consumption continued to increase rapidly, in fact at its fastest rate since 2007, at 4.5% – or 2.4% per capita, when increases in the country’s population are factored in.

Regular expenses increased particularly quickly for the average Israeli household in 2015. Steep increases were seen in categories such as utilities and fuel. On the other hand, the purchase of durable goods such as household appliances declined last year by 0.2%, while there was a substantial fall in the number of automobile purchases after two years of rapid sales increases.