Israeli Government Tax Collections Take Big Turn Higher in August

After two months of declines, tax revenues took a sudden, double-digit turn higher in August, even as the Gaza conflict was still underway, the Finance Ministry reported Sunday.

• Gaza fighting is over, but many business sectors see damage stretching into 2015
• Finance Ministry struggling to meet Defense Ministry budget demand for extra $3b

It said tax collections rose by 14.5% (after inflation) from a year earlier, to 21.3 billion shekels ($5.9 billion). That brought the figures for the first eight months of the year to 171 billion shekels, a 6.8% increase over the same time in 2013, the treasury said.

It also meant that tax collections – discounting one-time items – were 2.1 billion shekels ahead of the budget’s forecast for this year, it said.

Although it is too soon to tell whether the rise represents a reversal of the trend, the increased collections offer some hope to treasury officials who have been trying to plan the 2015 budget amid a slowing economy and an increasingly pessimistic forecast for tax revenue.

Facing the army’s demands for a combined 20 billion shekels in extra spending this year and next, a growing tax take would make it easier for officials to design a budget that reins in deficit spending and avoids tax increases, as Finance Minister Yair Lapid has vowed.

The first cabinet meeting on the budget is scheduled for September 16.

The August tax increase encompassed both direct taxes – mainly income tax – and indirect taxes, such as value-added tax and customs taxes.

The government collected 11.1 billion shekels in direct taxes in the month, a 19.5% increase from a year ago, bringing the eight-month increase to 85.5 billion shekels, an 8.2% increase on the year.

Indirect tax collection rose more slowly, but was still ahead a sharp 5.4% in August from a year ago, at 9.73 billion shekels, according to treasury figures. For the January-August period, indirect taxes were up a similar 5.4%, to 81.3 billion shekels.

Thanks to the strong rise in direct tax collections, the treasury said that trend data for recent months pointed to a 4% rise in tax revenues after inflation.

A bigger tax take helped the government reduce its deficit for August to 1.9 billion shekels, from 2.6 billion in August 2013, the treasury said. In the first eight months of the year, the deficit was just 8.5 billion shekels, or 2.6% of gross domestic product, narrowing from 13.2 billion the same time in 2013, it said.

On the expense side of the ledger, spending reached 24.1 billion shekels, of which 21.1 billion was for operations and 2.7 billion interest payments of debt. Spending has grown 3.7% since the start of the year through the end of August to 162.2 billion shekels, the treasury said.

Tax revenues were rising almost steadily since the spring of 2012, enabling the government to trim its 12-month trailing budget deficit to as little as 2.5% of GDP, well below the official target. But collections suddenly took a turn lower in June and July, raising the deficit to 2.7%. It fell back to 2.6% in the 12 months to August, the treasury said.