The Treasury is hiding a 19 billion shekel safety cushion, and it has a reason
Israel's government deficit has dropped to 3.3% of GDP, a surprise amid the ongoing war. The Treasury has accumulated a 19 billion shekel safety cushion but fears disclosing these figures.
Treasury officials are experiencing mixed feelings these days: the government deficit has settled at 3.3% of GDP, the lowest since November 2023, despite the war on several fronts. The figures for the first seven months of the year are telling: a deficit of 11.5 billion shekels compared to 37.2 billion in the same period last year, representing a 69% decrease.
The Treasury notes that budget execution is not distributed evenly. The gap between the projected deficit and the reality on the ground is large, which worries officials: it fuels the appetite of politicians and defense officials who are seeking additional funds. The second source of concern is the unexpected surge in tax revenues. Since the beginning of the year, they have grown by 38.3 billion shekels, while expenditures have increased by only 12.6 billion.
Expenditure and Revenue Dynamics
The government continues to spend heavily: in July, it spent about 60 billion shekels, the highest monthly amount since the beginning of the year. However, the monthly deficit stood at 4.8 billion shekels, nearly the same as in July last year. State revenues have grown by about 12%, while expenditures have risen by only 3.5%. Direct taxes rose by 17.7% to 212.8 billion, and indirect taxes increased by about 10% to 130.7 billion shekels.
Defense expenditures since the beginning of the year totaled 108.2 billion shekels (a 12.6% increase), while civilian ministry expenditures saw a nominal decrease of 1.3% to 220.1 billion. The defense budget, which opened at 112 billion shekels, was increased to 158 billion, with an additional 15 billion potentially pending based on actual execution.
Structural Change or One-Time Boom?
Economists are debating whether the revenue surge is permanent. According to the Accountant General's Department, part of the boom stems from the taxation of "trapped profits." This measure, once perceived as one-time, has effectively raised the tax base, as self-employed individuals leaving profits as dividends are subject to a surtax.
The Treasury categorically refuses to quantify the surprise in the deficit data. However, there is a figure—around 19 billion shekels—that can be described as a safety cushion. Meanwhile, the Bank of Israel insists on fiscal adjustments, arguing that defense spending will stabilize at 6%–7% of GDP. The Accountant General's office remains skeptical of demands for tax hikes, estimating that without another round of major fighting, the year will end with a deficit of less than 4.9% of GDP. This assessment is not voiced publicly to avoid triggering further budget demands from other ministries.
