Budget data for August and for January-August 2016

September 11, 2016

Bottom lines:

FISCAL POLICY: Clouds have appeared in what has, since mid-2015, been a clear blue sky. Although the January-August data show that the budget performance is still strong and fiscal policy is very comfortable, the figures for August — at least on the revenue side — indicate that a change for the worse seems to be underway. One month’s data is not sufficient to draw firm conclusions, but an orange light has gone on — for the first time in quite a while.

POLITICAL ECONOMICS: The draft budget for 2017-2018 will not start its Knesset passage until November, but if the revenue data continue to weaken in September and October, the key assumption underlying the government’s strategy for the upcoming two-year budget will be under threat — and with it Mr Kahlon’s political future and perhaps also this government’s survival through 2017.

Specifics:

  • The budget deficit for August was NIS2.6bn, and for January-August 2016 it was NIS5.2bn — up from NIS3.4bn in the first eight months of 2015, but still less than 15% of the projected deficit for full-year 2016.
  • For the twelve months ending August 2016, the deficit was equivalent to 2.2% of GDP — the fourteenth successive month that the 12-month trailing (TTT) deficit has held within a range of 2.0-2.2% of GDP, the lowest level since 2007.
  • Total revenues through August comprised 67.6% of projected full-year revenues, while expenditure amounted to only 62.3% of budgeted expenses for 2016.
  • Total tax revenues for January-August were NIS190.9bn, a 3.7% rise over the same period of 2015 and 68.8% of the annual total; indirect tax revenues were almost 70% of the projected full-year total.
  • However, August revenue data were down when compared to August 2015 — in some cases even after adjusting for reductions in tax rates in 2016.
  • This was especially the case in direct tax revenues , where corporate tax receipts were 15% lower than August 2015, with the decline concentrated in the financial sector — which is usually a cash cow for the Treasury.
  • Indirect tax revenues were also slightly down. VAT receipts, excluding defence imports, were 10% less in real terms than in August 2015
  • Purchase tax levied on imports was still up on August 2015 — but the tax revenue of car imports actually fell, as car imports finally begin to decline, after a prolonged boom.

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