A combination of high tax revenues, reduced government spending and a new
formula for calculating gross domestic product have brought the 12- month
deficit through August down to 3.3 percent of GDP, according to the Finance
Ministry – well below the 4.65% target for the year.
News that the
deficit had exploded last summer – it measured at 4.2% of GDP at the same time
last year, over double the original 2% target – fueled a political backlash and
became a subject of debate in January’s general elections. The target for 2012
was raised to 3%, and new taxes were imposed. Using the new formula for
measuring GDP, however, last year’s deficit would only have been
The Central Bureau of Statistics changed the GDP formula, which
measures economic output, with little fanfare prior to Rosh Hashana. The new
formula, which included items such as investments in research and development
among a slew of other small changes in the calculation, increased the overall
measurement for 2013 by NIS 66 billion, according to Globes.
many fiscal targets are calculated in reference to GDP, the new formula could
have longstanding implications for budgetary policy.
The Finance Ministry
on Monday said it was weighing the implications on the budget of the new method
of calculating GDP.
Finance Minister Yair Lapid, who aggressively raised
taxes and cut back planned spending increases, welcomed the data, saying the
ministry leadership is paying careful attention to changes in the budget’s
Lapid came under fire for the heavy-handed budgetary
moves he proposed in May; and during the lengthy budget proceedings in the
Knesset was forced to soften the blow of some of his harsher policies. Among the
less popular changes were higher income taxes; increased value-added tax; new
taxes on cigarettes, beer and alcohol; and reductions in child
Whereas overall spending in 2013 was expected to increase
8.8% from the previous year, actual spending thus far has only increased
The updated budget numbers could bring calls for Lapid to again
lower taxes, or reverse spending cuts. That may be difficult, however; many
economists forecast that the 2014 budget will overshoot the deficit target of
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