Tax Revenues Beat Forecasts by NIS 5 Billion in 2009

State revenues from taxes in 2009 totaled NIS 177.7 billion - NIS 4.8 billion more than the government had forecasted. Nevertheless, this is NIS 6.1 billion less than the revenues collected in 2008 and NIS 13.2 billion less than in 2007.

The total government deficit in 2009 reached NIS 39.3 billion, 5.15% of the gross domestic product (based on a GDP of NIS 763 billion in 2009), compared with a deficit of 2.1% of the GDP in 2008. Under the original state budget plan for 2009, the government had expected a deficit of NIS 45.8 billion, or 6% of the GDP.

As a result of the lower-than-expected deficit in 2009, the treasury has amended (informally for now) its estimated deficit forecast for the 2010 tax year. About six months ago the government set its target deficit for 2010 at 5.5%, while the new forecast now stands at around 4% or even lower.

The year 2009 was marked by a consecutive deficit, which increased steadily from the beginning of the year. This was considered rare, as in recent years most of the deficit has accumulated in the final months of the year.

But in November and December of 2009, the trend of increasing deficit over the previous 12-month period was halted. The positive change is expected to continue through early 2010, according to treasury estimates.

The treasury believes that budget underspending, higher-than-planned revenues from taxes, and higher-than-expected GDP are the primary reasons for the low deficit in 2009 as compared with earlier forecasts.

State revenues in 2009 were NIS 3.3 billion higher than budgeted, while government interest payments last year were NIS 1.8 billion less than allocated for in the original budget plan. Last year's high GDP as compared to earlier estimates helped lower the deficit percentage of the GDP by 0.15%.

Spending in 2009 made up 99.3% of the original budget, as compared to 100% in previous years. Defense spending reached 105.8% of the budget compared to just 98.3% for social ministries. Government spending in 2009 reflects a nominal increase of 5.6% in its ministries compared to 2008.

The bulk of the decline in tax revenues in 2009 was caused by a decline in direct taxes, income tax and land taxes - which generated a total of NIS 86.1 billion - a dramatic decline of 12.9% in adjusted terms as compared to 2008.

Indirect taxes (VAT and customs and import taxes) generated NIS 86.6 billion in 2009, 0.6% more than the year before.

This was the first time state revenues from indirect taxes exceeded revenues from direct taxes.

Tax collection from the capital market contributed NIS 2.4 billion to state revenues, down 0.7% in adjusted terms. Taxes collected on interest income declined by 44.8%, while revenues from securities increased sharply by 111%.

Revenues from business totaled NIS 36.5 billion in 2009, a decline of 5% in adjusted terms compared to 2008.

Revenues from taxes in 2010 will indicate the economy's true mettle. If in the next year the economy grows, if the number of persons employed rises and the number of unemployed falls, if the public has more money available to buy cars and televisions - there will be more taxes. And when state revenues from taxes increase, spending can grow as well - which means more money for other things such as defense, roads, trains and education.