The deficit continues to decline and at the end of March reached only 1.4% of GDP, the lowest level in the last 14 years, according to data from the Ministry of Finance published today (Sunday).
The deficit reflects the gap between government spending and its revenues over the past 12 months, and the continuing decline in the deficit is mainly due to the continued increase in state tax revenues. In the first three months of the year, a budget surplus of NIS 23.4 billion was recorded. For comparison, in the corresponding quarter in 2021, a budget deficit of NIS 23.3 billion was measured. The phenomenon of budget overruns in each of the first three months of the year is quite rare, and last occurred 15 years ago, in 2007.
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Revenues in March reached NIS 42.5 billion, of which about 6 billion are called other revenues because they do not come through the tax authority, 5.4 billion came from Social Security which transferred money to the government, ie At the National Insurance Fund.
However, tax revenues are also particularly high. Tax revenues in the first quarter of 2022 reached NIS 119 billion, an increase of 20% compared to the corresponding period in 2021. In March, taxes were collected in the amount of NIS 36.7 billion, an increase of 15.3% compared to 2021. We emphasize that these growth rates are realistic, and are after deducting the rise in the consumer price index (inflation).
The significant increase in tax revenues is due to direct taxes (an increase of 26.6% compared to 2021), and within direct taxes. A particularly significant increase in real estate taxes (mainly praise tax) can be seen, if in the first quarter of 2021 about NIS 3.6 billion was determined in real estate taxes, then in the first quarter of the year a double amount of NIS 7 billion was collected (without deducting inflation). Another factor in the increase in tax revenues is in the income tax categories from companies, which increased by 38% compared to 2021.
Indirect taxes rose at a real rate of 12.2% in the current quarter compared to the previous quarter. And 14% in the current March, compared to March last year. VAT revenues increased by 25% compared to the previous March, partly because there were restrictions in March 2021 for the corona. Purchase taxes on imports actually fell in March by 14% compared to the previous year, the tax authority says this is related to a decrease in vehicle imports Because of the lack of chips.
If this rate continues, it is likely that 2022 will close with a deficit lower than what is allowed by law. Last night, the economists of the rating company Moodyz estimated that this year will end with a deficit of 3.4% of GDP, compared to the 3.9% allowed by law.
Next month (May) Chief Economist Shira Greenberg is expected to officially update the country’s revenue forecast. The latest forecast presented to the Finance Committee was 411 billion. But it is clear at this stage that this is a rather low forecast, the government has already been given an updated forecast that includes an increase of at least NIS 10 billion. But it is estimated that in May, the revenue forecast will be even higher than NIS 421 billion.
The fact that tax revenues continue to rise, is of course macroeconomically welcome. But there is a lively debate about how these collection surpluses should be handled. The Bank of Israel has warned that they cannot be relied on and that these may be temporary factors. Also, the accepted macroeconomic theory holds that the state should reduce its debt or direct it to investments with positive returns during business tide times, so that future crises can be better dealt with.
On the other hand, Finance Minister Lieberman began to make frequent use of the collection surplus in order to “return the taxes to the public,” as he put it. Among the measures are raising the salaries of conscripts, providing credit points to families, reducing excise tax and more, the measures have been estimated by him for the time being at a value of about NIS 7-8 billion. The fear is that this trend will continue, and that some of Lieberman’s ‘temporary’ steps will become permanent, even while state revenues will not be so encouraging. This apprehension is heightened in the face of political instability, instability leading to the smell of elections in the air, and with it an increased desire to distribute to the public short-term candies.