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By Itzhak Rabihiya

Losing control? Is there a danger to the Israeli budget and why the deficit is only growing without the government acting?

The cumulative deficit for the fiscal year 2019 continues to climb: in January-June a deficit of NIS 21.9 billion was measured.

Government spending was 10.4% higher than in the corresponding period last year, compared with a planned increase of 5.1%.

The current budget deficit continues to swell towards the 4% of GDP danger line. The state budget performance figures for June published today by the Ministry of Finance shows that the budget deficit for the 12 months to the end of June was 3.9% of GDP, compared with 3.8% for the twelve months to the end of May. The cause of the deficit is a jump in spending by government ministries, while state tax revenues are staying at the same level – Globes Newspaper reports today (7.7.2019).

The Ministry of Finance's forecast is a NIS 50 billion budget deficit at the end of the year, 3.6% of GDP, while the budget deficit so far this year is NIS 21.9 billion. The budget deficit target for 2019 is 2.9% of GDP.

The Ministry of Finance tried to take comfort today in a reduction of deviations in spending by government ministries from the budget plan. As of June, government spending was 10.4% higher than in the corresponding period last year, compared with a planned increase of 5.1%.

The Israel Tax Authority explained that state tax revenues in June were NIS 300 million lower because of a revision in the "green" formula for calculating purchase tax cars, cutting the tax benefit for buying environmentally less harmful hybrid vehicles. The revision took effect on April 1. The announcement of the move led to higher car imports in March at the expense of the following months. Bringing imports forward added an estimated NIS 2.1 billion to tax revenues in March at the expense of NIS 700 million in April, NIS 600 million in May, and NIS 300 million in June.

The government last month approved the Ministry of Finance's emergency plan, including an across-the-board cut in ministries' budgets. This cut, however, is designed to pay for additional defense spending and subsidizing daycare centers. Its effect on the budget will be felt only in 2020, when the budget deficit is projected to be even worse than this year, unless steps are taken to reduce it.