Tax Collection in Israel Climbed 5.1% in the First Quarter From a Year Ago, Treasury Reports

Figures running so far ahead of forecasts that officials say they’ll need to revise 2016 projections later in the year.

Finance Minister Moshe Kahlon, March 30, 2016.
Ofer Vaknin

The rise in tax collection showed no signs of letting up in the first quarter, as the government collected a record 72.6 billion shekels ($19.1 billion), a 5.1% increase discounting for inflation from a year ago, the Finance Ministry said yesterday.

The increases were from all segments. Direct tax, which include income tax for individuals and corporations as well as property taxes, rose 5.3% after inflation while indirect taxes, like the value-added tax, duties and sales tax, were up 5.5%, it said.

As a result, the government collected 1.5 billion shekels more in taxes than was projected in the 2016 budget.

The rise in tax revenues has enabled Finance Minister Moshe Kahlon to make a series of tax cuts and spending increases, while earning praise from global financial markets. Last week the international credit rating agency Moody’s affirmed Israel’s A1 rating with a Stable outlook, citing its strong fiscal stance.

Last month, the treasury revised upward its collection forecast for the year by 600 million shekels, to 277.9 billion shekels, but officials said yesterday that the amended figures already appeared to be obsolete. They said tax revenue in recent months was higher by a 6% annual rate than in 2015. They said the target for 2016 would have to be pushed up later this year, to between 285 billion shekels and 290 billion shekels.

The office of the Finance Ministry accountant general said the government ran a tiny fiscal deficit in March — 500 million shekels — but for the entire first quarter it had a surplus of 1 billion shekels, double the level in the first quarter of 2015.

The government’s budget deficit for the 12 months through March equaled just 2.1% of gross domestic product, far below the 2.9%, or 35 billion shekels, the treasury had targeted for the year.

Spending by government ministries was up 8.5% to 63.2 billion shekels, the Finance Ministry said. Civilian spending grew 10.6% on the year, mainly due to a 19.1% rise in welfare spending. Defense spending, by comparison, grew by a more modest 2.2% from the same time in 2015.

Tax collection in March edged up only 0.9% from a year ago, to 24 billion shekels, the treasury said. It attributed the small rise to the timing of the Passover holiday, which lifts consumer spending. It occurred in the first week of April last year, so that spending was concentrated in March, and falls in the second half of April this year.