Budget deficit climbs to NIS 9.7b. in first half of year

The budget deficit reached NIS 9.7 billion in the first half of 2012, well above the NIS 5.3b. deficit recorded in the corresponding period last year, the Treasury revealed Wednesday.

Tax revenues reached NIS 106.8b. in the first half of this year, a shortfall of NIS 2.81b. from the government’s target – most of it due to unexpectedly low takings from income tax. However, the Treasury pointed out that June was the first month in which revenues outperformed expectations.

The government set a 2012 deficit target of NIS 18.4b. when it published its original biennial budget for the years 2011-12. The Treasury estimates that the actual deficit will reach at least NIS 29.7b. by the end of the year, due to a forecast NIS 11.3b. tax shortfall. The annualized deficit continued its upward trend in June, reaching NIS 33.1b., or 3.7 percent of GDP.

The Treasury released its latest data just three days after the cabinet approved Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz’s controversial plan to double the 2013 budget deficit target to 3% of GDP. Netanyahu and Steinitz stated that certain taxes will be raised next year, and that the government will adopt other measures to ensure it meets both expenditure and deficit targets.

Bank of Israel Governor Stanley Fischer and Treasury Budgets Director Gal Hershkovitz are among those who have spoken out against increasing the deficit target to such a high level, with both men calling for it to be revised to 2.5%.

According to Wednesday’s report, the Treasury collected NIS 15.9b. in tax revenues in June, a 6.7% increase from the same period last year. However, capitalgains taxes on real estate dropped 37.8% in June and 29.7% for the year to date compared to the corresponding periods last year.

The Treasury said this was caused by a sharp drop in the value of land sales in the first six months of this year, most notably in the Tel Aviv area – where the total value of land sales has fallen 60%.

Meanwhile, Treasury Accountant General Michal Abadi-Boyanjo sent new instructions to government ministries Wednesday on increasing supervision of royalty agreements. She said this was the latest in a series of measures designed to increase the state’s longterm revenues.

Under the revised guidelines, accountants in every government ministry must examine existing royalty agreements pertaining to their office, report back on the standard of supervision of royalty collections and examine the financial reports of those bodies that pay royalties.

External auditors will be appointed to supervise the operations of each body that is required to pay royalties.

The state collected NIS 1.75b. in royalties in 2011, most of it from the Communications Ministry, Industry, Trade and Labor Ministry, and Energy and Water Ministry. However, this figure is expected to increase substantially once Tamar, Leviathan and other offshore natural gas fields go online in the coming years.