Tax Collections Rose Close to 10 Percent in August From a Year Ago

Sharp increase in state revenues confirms Kahlon’s decision to cut taxes.

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Finance Minister Moshe Kahlon, May 18, 2015.
Finance Minister Moshe Kahlon, May 18, 2015.Credit: Gil Cohen-Magen

The government’s tax-collection bonanza extended into August, with revenues rising close to 10% from a year ago, confirming the optimistic projections that moved Finance Minister Moshe Kahlon to unveil a series of tax reductions in recent days.

The Finance Ministry reported on Tuesday that tax revenues rose 9.6% after inflation from a year earlier to 23.4 billion shekels ($6 billion). That brought the tax for the first eight months of the year to 184 billion shekels, an 8% increase after inflation from the same time in 2014, it said. The figures point to tax collections exceeding the target for 2015 by some 10 billion shekels, or 266.4 billion shekels, even though the estimate had already been adjusted twice this year to catch up with the rising revenues

Tax officials said that in August alone, tax collections exceeded their target by 2.6 billion shekels, although much of that was due to one-time factors. They said that revenues from land purchase taxes shot up as people who buy homes for investment moved forward their purchases in order to avoid a hike in the rate on July 1.

The sharp rise in tax revenues comes in contrast to the slowing economic growth reported by the Central Bureau of Statistics last month, which said preliminary gross domestic product expanded just 0.3% in the second quarter. Nevertheless, Kahlon has moved ahead with tax cuts on the assumption that brisk collections will continue into 2016. The treasury said trend data for the last four months suggested that collections were growing at a 5% annualized rate. That compared with a 4% pace from the end of 2011 to June 2014; since then the rate has accelerated to 9%-14% for direct taxes and 5% for indirect taxes.

Meanwhile, figures from the accountant general showed the government ran an usually low fiscal deficit in August of just 2.2 billion shekels for budgeted operations. Not only were collections in excess of forecasts, but spending was lower. For the first eight months of the year the deficit was 3.3 billion shekels, with overspending in some months offset by surpluses in January and July. The eight-month deficit compared with one of 9 billion shekels the same time in 2014 and a forecast deficit for all of 2015 of 32.7 billion shekels.

As a percentage of GDP, the deficit in the past 12 months came to 2.1%, the treasury said, well below the 2.9% ceiling targeted by the government for this year. Apart from the tax cuts, the government is expected to lavish more spending in the final months of the year.

A major reason for the constrained spending is that the government has been operating without a 2015 budget and instead has been using the 2014 parameters on a month by month basis. So far, spending has reached 172.2 billion shekels this year, a 5.6% increase over the same time in 2015. Spending by civilian ministries was up 5.6%, and by the army by 8.8%.

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