Israel’s Budget Deficit Narrows Slightly to 5.2% of the GDP by the End of AUGUST 2025

 Israel's government deficit narrowed slightly in August, reaching 4.7% of GDP, or approximately NIS 98 billion, according to data released by the Ministry of Finance. This marks a modest improvement from 4.8% in July and 5% in June.

The decline is attributed primarily to increased tax collection and the fact that the Knesset has not yet approved a planned budget expansion for the year.

Revised Deficit Forecast: 5.2% by Year-End

Despite the slight improvement in August, the Finance Ministry now projects the deficit will reach 5.2% of GDP by the end of 2025 — up from the original budget forecast of 4.5%–4.9%.

Since the beginning of the year, the cumulative deficit stands at NIS 46.7 billion, representing 2.3% of GDP. In addition, the government has spent NIS 6.3 billion through the Compensation Fund-Property Tax, which is not counted in the official deficit figures.

Spending Rises Amid Security Needs

So far in 2025, government spending totals NIS 414 billion, out of a planned NIS 619 billion in the original budget. However, due to increased security expenditures, this number is expected to surpass NIS 650 billion by year’s end.

The Knesset is preparing to approve an additional NIS 31 billion in budgetary allocations, which will bring official expenditure levels closer to actual fiscal reality.

Tax Revenues Show Strong Growth

On the revenue side, the government has collected NIS 367.6 billion since January — approximately 71% of the original annual forecast of NIS 517 billion, even though only two-thirds of the fiscal year has passed.

This performance has led the Chief Economist at the Ministry of Finance to raise the annual revenue forecast to NIS 538 billion, giving the government more flexibility to expand spending without proportionally widening the deficit.

Tax Collection Growth: Real and Adjusted

In raw terms, tax revenues have jumped 16.4% compared to the same period last year. However, when adjusting for inflation, recent tax increases, and one-time factors like the early import of vehicles, the real growth rate in tax revenues stands at 6.4%.

Still, the month-to-month comparison shows momentum: tax collection in August 2025 increased by 11.4% compared to August 2024, pointing to economic stabilization despite the ongoing security crisis.