Gov't Looks Likely to End 2005 With Budget Deficit of 1.2%

The year 2005 may be the most financially prosperous one the Israeli economy has seen in quite some time. New figures recently reported by the Finance Ministry indicate that the state will end 2005 with an unexpectedly low budget deficit of about NIS 7 billion, 1.2 percent of gross domestic product, despite having added NIS 1.5 billion to the budget for the Gaza disengagement over the course of the year.

According to the new data, only one year has ever competed for such economically auspicious status, and that was 2000 - the year that Israel gave birth to the technology bubble, record growth and low deficit of half a percent of GDP.

The 2005 deficit target had been 3.4 percent of GDP. The deficit will be about NIS 12 billion below that target this year for several reasons. Savings and under-spending at government ministries amassed NIS 5 billion to NIS 6 billion. Another NIS 2 billion was saved as interest rates dropped. The state also benefited from NIS 1.2 billion income in U.S. aid - the government received its 2004 allotment in early 2005, and the 2005 aid was paid out this week. This year also saw a sizable NIS 3 billion in surplus tax.

The year 2006 will also start on the right foot due to revenues accumulated from capital gains tax. Many investors are expected to cash in on the stock market this month, which could put billions into state coffers in January.

The low deficit, about a third of what was planned, makes the 2006 target - 3 percent - problematic. The treasury and Bank of Israel are currently debating the significance of a much higher target than the actual deficit.

A small amount of funding remaining in the 2005 budget will roll over to 2006 to meet ministerial obligations. The rest will remain in coffers and be used to repay public debt.