Tax Collections Hit Two-year High

The state showed a NIS 400 million surplus for the month, the first monthly surplus this year.

Tax revenues rose in July to their highest level in two years. The state showed a NIS 400 million surplus for the month, the first monthly surplus this year, show figures released yesterday by the Israel Tax Authority.

The main reason for the tax gain was the increased revenue in indirect taxes, mostly Value Added Tax, which rose by 1% to 16.5% on July 1. Indirect tax collection hit an all-time record of NIS 10.2 billion last month, about NIS 4 billion more than the average for such taxes so far this year. This was almost 25% higher than similar revenues from July 2008.

Another big part of the jump was the large increase in car sales before the so-called new "green taxes" took effect August 2. (See box.)

July tax revenues totaled NIS 18.1 billion, up 7% from the NIS 16.9 billion in July 2008 and just under the sum from July 2007.

Finance Minister Yuval Steinitz said yesterday: "The July tax collection figures join other positive signs such as the rise in goods exported in the past two months by 11% and the first positive purchasing managers index in over a year. Nevertheless, these are exceptional [tax] collection figures for only one month, and it is too early to draw firm conclusions as to future trends. Despite the stabilizing trend, the crisis is still not over and we expect to end 2009 with an exceptionally large [budget] deficit. We will continue to advance economic reforms and to maintain our policy of initiative and responsibility," said Steinitz.

However, the Tax Authority's numbers show that revenues from direct taxes, such as income and real estate taxes, were down by more than 15% from July 2008, totaling NIS 7.4 billion for the month. This stems from the recession in general and particularly from the drop in employment and rise in unemployment.

Taxes from capital markets rose in July compared to June by 16%, mostly due to large stock market gains.

But total tax revenue for the first seven months of 2009 is still almost 12% lower than in the same period of last year - NIS 102.6 billion this year as compared to NIS 112.9 billion last year.

While the surprising jump in July tax revenues - NIS 2.4 billion over treasury forecasts - may have made many Finance Ministry officials smile, Steinitz said: "The economy has stabilized and even is in a trend of slight improvement, but there is a lot of work left ahead of us, in particular in the area of employment. We must wait to be sure that the improvement continues. We must be cautious since the world economy has not come out of recession yet," said Steinitz.

The real fear in the treasury is that the July figures are a one-time spike.