Bottom Shekel / Hole in the Budget

The plunge in tax revenues during the last 18 months has been dramatic. From January 2008, each month revenues have fallen compared with the same month of the year before. In 10 of the last 11 months, the contraction was double-digit.

When revenues fall, the government has less to spend. It has to cut ministerial budgets. Since for years the government seems to have had difficulty prioritizing its actions, it institutes flat cuts at all the ministries. Since the defense budget is supposed to be sacrosanct, though, it's spared.

Since it's the biggest budget of the lot, by a mile, when defense is spared and tax revenues are shrinking fact, the cuts to education, healthcare and welfare will be painful indeed.

We must prepare.

Tax revenue is so important that the Finance Ministry keeps track of it every day, sometimes several times a day.

In the last 3 months, March to May, collection steadied above NIS 14 billion. It was also above NIS 14 billion in November 2008 and January 2009 (the most tax collected was NIS 18 billion in June 2007). But the firmness at NIS 14 billion allowed for cautious optimism regarding the rest of 2009 and 2010.

Then came June, and treasury officials almost wept. The month isn't over yet, but the figures for the first 17 days are horrible.

The treasury estimates that at best it will bring in NIS 12 billion this month as the economy contracts, import taxes plunge and tax from the financial system refuses to rally. But the real fear is that June won't be the exception, but the rule down the year.