Israel's Tax Revenue Forecasts Often Misleading, Analysis Shows
An analysis of Israel's state budget data from 2015 to 2025 reveals that while the overall projected revenue often appears accurate, this is largely due to the inclusion of debt collection as a balancing factor. The true accuracy of tax revenue forecasts, when examined separately, shows significant deviations.
Over the past decade, the average absolute deviation between planned and actual total state revenue has been only 2%, with most years staying below 3%. However, this figure masks a more complex reality. When debt issuance is factored in, shortfalls in tax collection are offset by increased borrowing, and surpluses are balanced by reduced borrowing, creating an illusion of precision. For example, in 2022, tax revenues exceeded forecasts by 68.8 billion shekels, but the state borrowed 89 billion shekels less than planned, resulting in a net shortfall of 12.1 billion shekels in total revenue.
Examining tax revenues alone paints a different picture. Income tax consistently outperforms forecasts, with a cumulative surplus of 98.4 billion shekels between 2021 and 2025, representing 9.7% above projections. Value Added Tax (VAT) also tends to exceed targets, albeit by a smaller margin. Conversely, taxes on labor expenses and import duties consistently fall short of projections.
Certain tax categories exhibit high volatility. Property transfer taxes, for instance, surged 57.5% above forecasts in 2022 but plummeted 26.2% below in 2023, reflecting the unpredictable nature of the housing market. Fuel taxes have also shown increased deviation recently, influenced by government policy changes rather than consumption patterns.
The article also highlights data integrity issues, noting instances where specific revenue lines in the budget database are missing or significantly inaccurate, distorting the overall figures. The Chief Economist's Office within the Ministry of Finance is responsible for these revenue forecasts, which are crucial for determining budget deficits, debt issuance, and ultimately, government spending levels and potential cuts.
