Israeli Tax Revenues Rise Sharply Despite Broader Economy Slow-down

Treasury says collections grew 6.5% in September, to $5.9 billion.

Israel Tax Authority offices in Jerusalem.
Lior Mizrahi

Israeli government tax revenues continued to rise sharply in September even as the broader economy has slowed.

The Finance Ministry said Thursday that tax collections and other income rose by 6.5% after inflation to 22.6 billion shekels ($5.9 billion) last month, compared to a year earlier. That brought the total for the first nine months of 2015 to 207 billion shekels, an increase of 7.9% from the same period in 2014.

The September tax figures were a surprise to treasury officials, who at the end of August were predicting that the month’s tax take would be weighed down as a result of the High Holy Days, which would mean the loss of more business days than in 2014, when the most of the season’s holidays were in October.

The tax figures come as good news for Finance Minister Moshe Kahlon, who has been trying to square promises for more social spending and a higher defense budget with signs of cooling economic activity. In the second quarter, the Central Bureau of Statistics said gross domestic product edged up just 0.1% on an annualized basis.

Taking advantage of the tax bonanza, Kahlon has in the past few weeks cut some taxes, including the value-added tax to 17%, corporate income tax and taxes on alcohol. But he could find himself in a budget squeeze if tax revenues don’t maintain their current levels. In addition, the growing tide of Palestinian violence could spell trouble for Kahlon if the army demands an increase in appropriations.

In the end, tax collections in September exceeded treasury forecasts by about 600 million shekels. Independent economists are now forecasting the government’s tax revenues may reach 276 billion shekels for all of 2015, about 6 billion shekels more than the treasury had budgeted for the year, even after revising the estimate upward three times over the course of the year.

The treasury accountant general said the government ran a fiscal deficit of just 600 million shekels in September. In January-September, the deficit was just 3.8 billion shekels, just over a third of the 10.9 billion shekels it reached at the end of September 2014. The budget forecast a deficit of 32.7 billion shekels for all of 2015.

Measured as a proportion of GDP, the standard benchmark for the government’s fiscal performance, the deficit was 2% in the 12 months through September, compared to 2.9% envisioned in the budget for 2015.

Since the start of the year, the government had run up expenses of 194.9 billion shekels, an increase of 5.1% from the same time in 2014. Spending by nonmilitary ministries rose 4.1%, while defense spending jumped 8.3%.

Most of the increase in tax collections for September came from direct taxes, mainly income tax, which soared 18.7% from a year ago. Indirect taxes, such as VAT, dropped 2.4%. The treasury said the drop in indirect taxes was due to the holidays. For the first nine moths, indirect taxes were up 4.6% from the same time in 2014.