One point of light has been encouraging the people of the Ministry of Finance recently. Last Thursday, data on the state’s revenues and expenditures for May were published, and as every month since the beginning of the year, a budget surplus and not a deficit was measured. Since 2007 there has been no such positive continuum of five months in the country’s balance sheet.
Alongside the celebrations was the claim “If there is so much money, why is the government not taking it back on the public?” And there are quite a few reasons for this. From the budgetary rules to the economic forecasts for the coming period.
First, in the event that state revenues exceed the early forecasts, the government is allowed to use the surpluses only on the revenue side. For example, in such a situation it is possible to lower taxes, thus lowering state revenues to the level planned in the forecasts. The Minister of Finance, Avigdor Lieberman, has done this in recent months when he reduced the income tax for some parents and reduced the excise tax on fuel.
On the other hand, programs whose purpose is to spend money outside the budget are only possible due to developments on the expenditure side. That is, only if the government has not implemented a plan, is it possible to divert the funds to other expenditures. But even here, this is not the top priority of the Ministry of Finance. By default, surpluses go to cover the deficit. Even if the deficit is zero, the state’s debt, ie the total deficits and liabilities of the state from previous years, stands at about NIS 1 trillion. Israel’s public-debt-to-GDP ratio did shrink to 68.8% in 2021. But we are still far from the pre-Corona data. In a business company they would not rush to open champagnes just because for a year they did not make money but also did not lose.
True, in an international comparison, trends in Israel are more positive than in other countries. But the Treasury has a consensus that sharp growth as seen last year will not be repeated this year. The interest rate hikes, which are intended, among other things, to moderate consumption in the economy, will lead to a reduction in state tax revenues, and it is not certain that it is time to start scattering funds. Especially when some of the plans promised by the government, such as compensating the businesses affected by the omicron wave, have not yet been implemented due to the political difficulties. Sometimes, the beautiful data that shows savings in government spending also reflects a failure to achieve goals.