Israel's Tax Collection Hits Record High

The government collected record high tax revenues in the first four months of the year, with receipts reaching 91 billion shekels ($23.6 billion), a 6.1% increase from the same time in 2014, the Finance Ministry reported yesterday.

In April alone, tax revenues climbed 8.6% to 21.6 billion shekels, the ministry said. That adds up to 3.6 billion shekels more collected than what budget planners predicted for the first third of the year. Officials are now predicting that tax revenues for all of 2015 will exceed forecasts by about 12 billion shekels.

The excess tax revenues should simplify Finance Minister-designate Moshe Kahlon’s job. One of the first tasks awaiting him when he takes office will be to prepare a new budget, since the original 2015 budget drawn up by Yair Lapid never won Knesset approval, before an election was called last December.

Estimates are that Prime Minister Benjamin Netanyahu offered coalition partners some 9 billion shekels in new spending or tax cuts. Among the biggest items are an increase in child allowances, which will cost 2.6 billion shekels; a 630-million-shekel supplement to the Education Ministry budget; and higher pay for soldiers, which will cost 1.3 billion shekels.

The Finance Ministry said that trend data point to an annualized increase of 4-5% in tax collection, a pace that has actually been accelerating in recent months – especially for direct taxes such as personal and corporate income tax.

The source of the tax windfall is in direct taxes, in particular 700 million shekels due to one major corporate dividend distributed in December. On the other hand, indirect taxes, such as value-added tax, are about 100 million shekels short of forecasts, the treasury said.

Direct-tax collections grew 8.3% in the first four months from a year ago, to about 47 billion shekels. However, the pace slowed in April, with collections up 7.2% to 21.6 billion shekels – which was 600 million more than forecast. Indirect-tax collections were up as well, but only by 3.5%, to 41.8 billion shekels, the Finance Ministry said. Last month, the growth rate jumped to 10.5%, giving the state 89.6 billion shekels in revenues.

In spite of the tax windfall, the government posted a small budget deficit of 400 million shekels in April, the treasury reported. But in the first four months, it was in surplus to the tune of 300 million shekels (compared with a deficit of 1.4 billion shekels at the same time in 2014).

The government’s deficit for the 12 months through April 30 came to 2.56% of gross domestic product, far less than the 3.4% budgeted in Lapid’s abortive 2015 spending package. In the absence of a 2015 budget, the government has been operating on the basis of the 2014 budget, spending 1/12th of the amount every month.

Since the start of the year, the treasury said, the government has spent 78.5 billion shekels, not counting debt repayments – an increase of 3.3% from a year ago. Civilian spending was up 2.1%, while defense spending rose 6.9%, it said.