2007 Budget Deficit at 20-year Low

Huge spending in December wiped out NIS 8.1 billion surplus.

Israel wound up 2007 with a tiny budget deficit of about NIS 100 million (0.02% of gross domestic product), instead of an expected deficit of NIS 18.7 billion (2.9% of GDP).

An NIS 8.1 billion deficit in December, the largest for a single month in 2007, was offset by the surplus accumulated since January.

Last year's deficit is the lowest since 1987, when the current deficit ceiling was set. In 2003, at the height of the economic crisis (2001-2003), the deficit stood at 5.4% of GDP. The minuscule deficit was achieved by virtue of increased tax revenues, which exceeded expectations by NIS 14.5 billion, and spending that fell NIS 4 billion below budgeted levels.

Data released yesterday by the Finance Ministry's accountant general indicates that government spending in December totaled NIS 27.2 billion, of which 23.9 billion are attributable to ministry spending - similar to 2006 levels. December spending was 66% higher than the monthly average for 2007.

Tax revenues in December alone totaled NIS 14.8 billion.

Total domestic activity in 2007 produced a surplus of more than NIS 6.3 billion, compared to a planned deficit of NIS 14.3 billion and a 2006 deficit of NIS 1.6 billion. Overseas activity produced a deficit of less than NIS 6.5 billion.

Spending reached just 98.2% of budgeted levels in 2007, compared to 100% in 2006.

Tax revenues totaled NIS 190.8 billion in 2007 instead of the forecast NIS 179.5 billion, an increase of 7% over 2006.

Income from direct taxes rose by 5.3%, and from indirect taxes by 9.5%.

Other revenues (from sources such as interest and social security deposits) were also NIS 3.7 billion higher than expected in 2007. Income from the privatization of government companies was also high, at NIS 6.2 billion - NIS 1.7 billion more than planned.

High revenues from taxes and privatization allowed the government to repay NIS 10.6 billion in debt. These repayments, along with accelerated economic growth, moderate inflation and a sharp appreciation of the shekel against the dollar, resulted in a 6% drop in the debt-to-GDP ratio, to about 80%.

Government activity in 2007 represents a 4.6% nominal increase in ministry spending over 2006.

The defense establishment spent 4.3% more in 2007 (NIS 1.9 billion), following an increase of 9.8% in spending in 2006.