Israel’s budget deficit declines further in February; Treasury expected to slow bond issuance

ISRAEL - In Brief 11 Mar 2025 by Sani Ziv

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The Ministry of Finance announced yesterday that Israel recorded a fiscal deficit of NIS 6.1 billion ($1.7 billion) in February. The trailing 12-month deficit fell to 5.3% of GDP, down from 5.8% in January, 6.9% in December, and a peak of 8.5% in September 2024. The decline is primarily attributed to strong tax revenues in January, boosted by early purchases and payments ahead of VAT hikes, new taxes on electric vehicles, and the corporate trapped profits tax. Additionally, reduced defense spending and fiscal restraint due to the interim budget contributed to the improvement. Government expenditures in February dropped by 7.3% year-over-year, mainly due to cuts in defense spending and the impact of interim budget restrictions. Without an approved budget, the government is limited to spending only 1/12 of the annual 2024 budget each month. Defense expenditures fell to NIS 9.6 billion in February, marking a 37% YoY decline. Since the beginning of the year, overall government spending decreased by 7.6%, with a 30% reduction in defense spending, while other ministries saw a modest increase of 2%-4%. Tax revenue rose by 1.3% in real terms in February, reflecting an increase in income taxes and a decline in consumption taxes. Since the start of 2025, tax revenues have increased by 12% year-over-year. Deficit projected to decline to 4.5% of GDP in 2025 Looking ahead, tax revenues are expected to be slightly higher than the Treasury's forecast, suggesting that the fiscal deficit for the year will likely be around 4.5% of GDP instead of the initially projected 4.9%. This forecast assumes that the ceasefire agreement with Hezbollah remains in place and that fighting in Gaza does...