Israel’s deficit shrinks to 5.8% of GDP in January as revenues surge; further decline expected in 2025

ISRAEL - In Brief 10 Feb 2025 by Sani Ziv

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Israel’s budget deficit narrows to 5.8% in January 2025 as revenues surge again amid forward payments ahead of planned tax increases The Ministry of Finance announced yesterday that Israel recorded a budget surplus of NIS 23.2 billion ($5.3 billion) in January. The trailing 12-month (TTM) budget deficit declined to 5.8% of GDP, down from 6.9% in December, 7.7% in November, 7.9% in October, and a peak of 8.5% in September, marking the fourth consecutive month of deficit reduction. While this trend was expected, it primarily reflects the impact of high tax revenues in January, as many taxpayers advanced payments ahead of planned increases in VAT, taxes on electric vehicles, and trapped profits. Government spending in January also declined, by 6.8% year-over-year, due to reduction in war-related expenditures and the restraining effect of the interim budget. Due to the absence of an approved budget, the government is currently limited to spending only 1/12 of its projected annual budget for 2024 (NIS 43.6 billion) each month. On the revenue side, total state revenue for January 2025 amounted to approximately NIS 63.1 billion, reflecting a 45% increase compared to the same period last year. This surge was primarily driven by a 60.9% rise in direct tax revenues, while indirect taxes registered a more moderate increase of 22%. In February, revenues are expected to weaken significantly, reflecting the impact of accelerated purchases and tax payments brought forward to December and January. Deficit projected to decline to 4.7% of GDP in 2025 Looking ahead, tax revenues are expected to align with the Treasury's forecast, suggesting that the fiscal deficit for the year will likel...