Israel's Budget Deficit Shrinks as Tax Revenues Rise, Crypto Fails to Meet Expectations

Israel's budget deficit continued to narrow in August, with monthly figures showing a deficit of approximately NIS 7.9 billion, down from NIS 9.6 billion in August of the previous year. The cumulative deficit for the year to date stood at around NIS 19.2 billion, a significant decrease from NIS 46.8 billion during the same period in the prior year. Over the last twelve months, the deficit also decreased, reaching approximately 3.2% of the GDP, compared to 3.3% at the end of July. The government had previously revised its deficit target for 2025 to 4.6% of GDP, with the target for 2026 set at 4.9%.

The primary driver behind this improvement is a strong performance in state revenues. In August, total revenues reached about NIS 47.9 billion, up from NIS 43.9 billion the previous year. For the year to date, revenues totaled approximately NIS 410.1 billion, an 11.5% increase compared to the same period last year. Tax revenues specifically grew by 13.9% year-to-date, with direct taxes up 16.3% and indirect taxes up 10.5%.

This revenue growth is particularly notable given the moderate increase in government spending. Expenditures from January to August amounted to roughly NIS 429.3 billion, a 3.6% rise from the previous year, which is below the planned 7.4% increase. However, the Ministry of Finance warns that government spending is accelerating and is expected to continue rising in the coming months. Notably, defense system expenditures surged by 10.9% to NIS 123 billion, while spending on civilian ministries remained relatively stable.

Despite the positive revenue trends, a voluntary disclosure initiative by the Tax Authority, aimed at uncovering undeclared assets and income, fell short of expectations, especially concerning cryptocurrency. The initiative saw 203 applications related to digital asset profits, reporting approximately NIS 482.5 million in assets and yielding an estimated NIS 51 million in taxes. The state had anticipated revenues of NIS 2-3 billion from this program, primarily from crypto gains, but the total tax collected from all 823 disclosure applications, which reported about NIS 1.89 billion in assets, was only around NIS 152.6 million.