State Revenues Grew 6.3% in 2016, Cutting Budget Gap to 2.1% of GDP

Deficit reduction comes despite surge in spending in December, says treasury.

Finance Minister Moshe Kahlon meets with construction industry executives, January 3, 2017.
Ofer Vaknin

As expected, Israel ended 2016 with state revenues well ahead of what treasury budget planners had expected and the government finished the year with a much narrower budget deficit, despite a surge of spending in December.

The Finance Ministry accountant general said on Sunday that tax collections rose to 283.15 billion shekels ($73.6 billion), an increase of 6.3%, or 15.3 billion shekels, from 2015.

That helped reduce the budget deficit to just 2.15% of gross domestic product last year – well under the target of 2.9% even as the government ran up an 18.1-billion-shekel deficit in December, 70% of the year’s total, and prompted Finance Minister Moshe Kahlon to talk about another round of tax cuts.

The treasury attributed the surfeit of tax revenues to higher wages and a big increase in car imports last year, all of which meant more taxes, as well as stepped enforcement and a crackdown on tax evaders.

In December alone, some 80,000 cars were imported to Israel, about three times the monthly average for the year, as importers rushed to bring in cars before the revised green tax went into effect on January 1 and raised rates for many makes and models.

The surge in tax revenues was already apparent at the start of the year, and by June collections were running about 4 billion shekels ahead of forecasts, which prompted the treasury to increase its forecast for the full year. But that projection also proved too conservative and in the second half of the year tax collections were running 700 million shekels ahead.

However, the treasury took 1.6 billion shekels of the surplus tax revenues and put it into the special fund for covering war damage to homes. As a result, the excess revenues were booked by the Finance Ministry at just 2.3 billion shekels for the year.

Meanwhile, government spending last year reached 347 billion shekels, representing 99.9% of the funds that had been allocated in the budget. Spending by ministries was 298 billion shekels, or 100.6% of the budgeted amount, the Finance Ministry said.

Spending was up 8.2% over 2015, which was higher than the 7.5% envisioned in the original budget. Civilian spending rose 9.5%, less than the 11.3% projected, while defense spending climbed 4.3%, faster than the projected 3.7%, the treasury said.