Israel's Government Deficit Falls to 3.3% of GDP in June 2026

Israel's government deficit over the past 12 months decreased to 3.3% of GDP by June 2026, down 0.4 percentage points from the end of May, according to the preliminary budget execution report released by the Accountant General's Department in the Ministry of Finance on Wednesday. This improvement is attributed to reduced war-related expenditures and the economy's near-full recovery. The monthly deficit for June was approximately 8.6 billion shekels, significantly lower than the 16.8 billion shekels recorded in June 2025 during the escalation of the conflict with Iran.

Since the start of 2026, the cumulative deficit totaled 6.8 billion shekels, compared to 32.4 billion shekels in the same period last year. The government’s annual deficit target remains at 4.9% of GDP. State revenues in June reached 45.7 billion shekels, accumulating to 307 billion shekels since January, marking an 11.4% increase from 275.7 billion shekels in the first half of 2025. Government expenditures in June were 54.3 billion shekels, with a moderate 1.9% rise to 313.8 billion shekels year-to-date, well below the original budget’s planned 7.4% growth.

The revenue increase is mainly due to a surge in tax collection. The Tax Authority reported that tax revenues in June 2026 totaled 45.2 billion shekels, a 26% rise compared to June 2025. Direct taxes increased by 31%, indirect taxes by 19%, and fees by 27%. Much of this growth is explained by the deferral of VAT and income tax payments amounting to about one billion shekels in June 2025 due to the Iran conflict, which artificially lowered the comparison base. Adjusted for the war’s impact, the real increase in tax collection in June is about 15%. From January to June 2026, tax revenues rose 10% year-over-year, with direct taxes up 14% and indirect taxes up 4%. The tax revenue forecast for 2026 was updated in early June to 567.4 billion shekels, with actual collections in the first half of the year at 297 billion shekels, less than 1% below the forecast.

The Accountant General’s Department noted that government spending is expected to accelerate in the second half of 2026 compared to the first half.