The budget deficit is not declining despite Treasury efforts to curb spending: 3.7% of GDP

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by Ifi Reporter Category:Capital Market Nov 6, 2019

The Israeli government's budget deficit is not declining despite Treasury efforts to curb spending. According to the Treasury budget update, the cumulative deficit in the past 12 months (November 2018 - October 2019) was 3.7% of GDP, a slight decrease from its September level (3.8%). Excluding the tax deferral, the cumulative deficit was at 3.6% of GDP.
Expectations for October's publication were to reduce the deficit more significantly, in part due to great efforts by the Treasury to reduce budgetary expenditure. For example, the budget commander at Treasury Shaul Meridor froze the transfer of about NIS 2.6 billion from the 2018 budget surplus, dropping 50% of the amount only in early November. Accountant General Roni Hezekiah also joined the efforts and instructed the office-bearers not to approve new engagements and extensions but in exceptional cases.
The expenditure of civilian ministries since the beginning of the year, which has grown at an alarming rate in recent months, is declining to the planned pace and is expected to grow by 8.5% as of October, compared to a 6% increase. The increase in defense system spending since the beginning of the year stands at minus 0.8%, compared with a planned increase of 1.7%.
Tax collection has seen a minimal increase of 2.3% since the beginning of the year, but Treasury estimates that tax revenues totaling NIS 2.2 billion were deferred from October to November, and in calculating these revenues, the increase from the beginning of the year reaches 3.1%. October tax revenues were relatively low due to the multiplicity of Tishrei holidays this month.

As of June, government expenditure was 10.4% higher than in the corresponding period last year, when the plan was for 5.1% growth.
The Tax Authority explained that state revenues this month were lower by about NIS 300 million due to the update of the green taxation formula on April 1, an update that led to the establishment of car imports for March at the expense of imports in the coming months. According to the estimate, the advance of imports increased the collection by NIS 2.1 billion in March, of which NIS 0.7 billion at the expense of April, NIS 0.6 billion at the expense of May 2019 and NIS 0.3 billion at the expense of June.
Last month, the government approved the Finance Ministry's emergency plan, which includes broad cuts in ministry budgets. The cut is meant to finance additional budget expenditures for security needs and subsidize lunch, and the program's impact on the deficit will be felt only in 2020, when an even more severe deficit is expected this year, if no steps are taken to reduce it.
The first cross-sectional cut has already been approved, amounting to NIS 1.15 billion - a small sum compared to the size of the fiscal problem that has been created. As of June, the actual deficit is still NIS 4 billion away from the ceiling that is updated after efficiency measures.
In 2018, Israel's debt-to-GDP ratio rose for the first time in a decade to 61 percent of GDP, and the government's interest-rate rebates increased to reach more than NIS 16 billion in the first half of 2019 - that is, the government spent NIS 16 billion only for payment of debts.
Total government ministries' expenditure since the beginning of 2019 amounted to NIS 166.8 billion, an increase of 10.4% compared to the same period last year. The expenditure of civilian ministries increased by 13 percent (compared with a planned increase of 6 percent), and defense expenditure rose by only 1.7 percent, according to planning.
State revenues from taxes in the first half of 2019 rose by only 1% in real terms over the same period last year, with a real decrease of about half a percent in the same period in direct taxes (VAT and purchase taxes).

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