Government deficit continues to shrink: the deficit in May reached 10.5% of the Israeli GDP

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by Ifi Reporter Category:Capital Market Jun 8, 2021

Recovery of the economy. The government deficit continues to shrink: the deficit in May reached 10.5% of gross domestic product (the cumulative deficit in the last 12 months), after a deficit of 11.2% in April. The main reason for the decline is a sharp increase in state revenues due to an improvement in tax collection.
Despite the decline in the cumulative deficit over the past 12 months, public debt is still on the rise due to continued government deficit activity. At the end of 2020, the debt reached 72.4% of GDP.

The decline in the deficit over the past 12 months is mainly due to revenues, in light of the economic recovery from the crisis. State revenues in the first five months of 2021 amounted to NIS 164.4 billion - an increase of 30% compared to the same period last year.
On the expenditure side, the state has so far spent about NIS 200 billion in 2021, including special expenditures to deal with the corona crisis. Government spending has also shrunk due to the gradual cessation of aid programs in Corona and the decline in unemployment.
State tax revenues were higher than forecast. According to the Chief Economist's forecast, the state's revenues were supposed to reach NIS 148 billion by May (inclusive), but in practice they have so far reached NIS 164.4 billion - about 46% of all projected state revenues for 2021.
The increase in tax revenues in 2021 was also significant when compared to 2019, when there was no decline due to the corona crisis. Thus, the increase in tax revenues from the beginning of 2021 to May compared to the corresponding period in 2019 reached 15%, mainly from direct taxes such as income tax.
An additional increase of NIS 8.5 billion was recorded in May following the deposits of the National Insurance Institute - the social security payments involved in the state coffers. In 2020 however these sums were not transferred due to the need to fund the aid programs in Corona.
The significant improvement in the deficit raises great optimism that 2021 will end in a better-than-expected deficit. The forecast of the Chief Economist in the Ministry of Finance is for a deficit of 8% in 2021 relative to GDP. In light of current data, estimates are currently that the deficit in the year-end summary will be at a lower rate.
Israel's debt continues to swell. In May, the Accountant General in the Treasury raised a net NIS 58 billion to continue financing Israel's debt, compared with a net fundraiser of NIS 51 billion in April.

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