The cumulative deficit for the last 12 months continued to shrink last March and reached NIS 22 billion, which is about 1.4% of GDP. This is compared to about 2.2% at the end of February, the Accountant General of the Ministry of Finance announced this week. March was the third month in a row in which a budget surplus was measured and since the beginning of the year a budget surplus of NIS 23.4 billion has been recorded.
The deficit as a percentage of GDP is at its lowest level since 2008. About a year ago, the deficit, measured as the difference between state revenues and expenditures in the last 12 months, stood at a negative record of more than 12%.
The state’s revenues in January-March reached more than NIS 125 billion – a jump of 29.3% compared to the same period last year. Along with the increase in revenues, the Treasury is benefiting from a decrease in government spending, which fell by 15.2% within a year to NIS 102 billion. The main cause of the decline in spending is the cessation of the country’s safety net given in the wake of the corona to businesses and the unemployed.
The 13th consecutive month that the deficit has shrunk
March is the 13th consecutive month in which the deficit has shrunk. About a year ago, the economy began to recover, and the end of the country’s grant programs last July led to a further decline. The deficit-to-GDP ratio before the outbreak of the corona crisis, just over two years ago, was around 3.5-4 percent – almost three times its current level. That is, after a steep jump in the deficit during the first year of the corona to about 12%, the second year has already marked a rapid drop of the same budget hump.
The reversal of the trend is so symmetrical that it can be seen that from the beginning of the year a rare cumulative surplus of NIS 23.4 billion was measured – the same amount almost exactly that reflected the deficit of the corresponding period last year. The deficit data are significantly better than the deficit target set at the time of budget approval and stood at 3.9% of GDP.
Most of the budget surplus originated in January (NIS 18.6 billion) and February (NIS 4.1 billion). In March, the celebration calmed down a bit, but a budget surplus of NIS 700 million is also an indication of the economy’s immunity and the continuation of the positive trend. This is the first time since 2007 that in all months of the first quarter of the year a budget surplus was recorded.
A 28% increase in income tax collection
The main bonanza came in March with a 28% increase in income tax from self-employed and companies to NIS 8.6 billion (compared to March last year), a jump in VAT revenues by 25% to NIS 11.4 billion, a jump of 23% in excise taxes on fuel to NIS 1.9 billion, and from real estate taxation, which almost doubled to NIS 2.5 billion last month.
Finance Minister Avigdor Lieberman announced last week that the tax on fuel would be reduced by 50 agorot per liter. Lieberman explained that the increase in state revenues enables the move, and now it turns out that the jump in state revenues from excise on fuel in March alone can alone fund part of the plan.
State revenues from direct taxes jumped in the first quarter of 2021 by no less than 26.6% compared to the same period last year. In the area of indirect taxes, growth was measured at 12.2%, and at growth rates of 10.4%. On the other hand, tax revenues on imports fell in March in real terms by 14% to NIS 1.9 billion.
Although the Ministry of Finance also estimates that the celebration of revenues will finally moderate and not last long, Jerusalem is currently enjoying the flexibility it provides them in managing the budget. The professional officials have more money to spend on repaying the state’s debts, which have swelled due to the corona crisis and the increase in budget boxes to more than a trillion shekels. Politicians benefit from the ability to “distribute candy” to the public from spilled collection surpluses, such as lowering fuel or reducing income tax for working parents.
In May, if work on the state budget does not stall due to the coalition crisis, the chief economist at the Ministry of Finance, Shira Greenberg, will publish a report with an updated forecast for state revenues for 2022, which is expected to be much higher than the original forecast. On the basis of the updated forecast, the framework will be built for the next state budget, for the years 2023-2024.
Despite the surplus income: the budget will be cut in favor of refugees from Ukraine
Earlier this week, the Ministry of Finance presented two lines that at first glance seem contradictory: the first is a jump in state revenues, which narrowed the budget deficit to only 1.4% of GDP. The second, along with the gratifying data, is that the Minister of Finance submitted to the government the proposed resolution for a horizontal cut in the state budget by half a billion shekels a year.
The cuts are intended to fund the state’s preparations for the absorption of immigrants from the war zones between Ukraine and Russia. The country is preparing for an increase of 25,000 people.
The classic curatorial approach is that collection surpluses are routed to cover debts and reduce the deficit. But in recent months, Lieberman has been announcing benefits to the public – such as lowering the tax on fuel – and justifying them by saying that growth in state revenues enables the measures.
On the face of it, if the treasury is bursting with excess income and only looking for worthy goals to invest the money in, then there is nothing worthy of the goal in absorbing the immigrants. So why is the Treasury not using the collection surplus to finance the absorption and opting for a step of horizontal cuts in the budget base?
This is because the government can finance from the increase in revenue only measures that are mainly a decrease in revenue, such as tax cuts. The actions required to absorb the wave of immigration are on the side of spending, the ceiling of which the government cannot break. Therefore, a cut in the spending budget of government ministries and state authorities is required.
“Will allow the integration of immigrants”
The ministry that will be required to transfer the highest amount is the Ministry of Transportation, which will have to cut NIS 61 million from its budget. Even the Ministry of Defense, which is usually exempt from horizontal cuts, will shoot at the target and give up NIS 50 million. Ironically, the budget of the Ministry of Immigration and Absorption will also be cut by about NIS 8 million, although the horizontal cut is actually intended to increase the ministry’s activities.
Among the Finance Ministry’s reasons for the need for cuts is that “the state of emergency created by the events of the war in Ukraine has led to immigrants from Ukraine, Russia and Belarus often arriving in Israel in a hurry and with few resources.” , In order to enable them to integrate as quickly and effectively as possible into the community. “Assistance will be given immediately to all immigrants who came to Israel due to the war in Ukraine.”
According to the aforesaid, the absorption basket “is expected to lead to a significant increase in the disposable income held by the new immigrants, and to enable the immigrants to integrate quickly and efficiently among Israeli society.”