Deficit swells to NIS 1.7 billion so far

The budget deficit for the first two months of 2013 has already exceeded that of the same period in 2012, according to numbers released by the Finance Ministry on Thursday.

In February, the government spent NIS 4.3 billion more than it took in. When added to the NIS 2.6b. budget surplus from January (a month that often sees more intakes than expenditures), the total deficit for the year stood at NIS 1.7b. In the same two-month period in 2012, the government had a NIS 2.9b. surplus.

In 2012, the 4.2 percent annual deficit caused a political stir, setting into effect legal requirements to cut spending and raise revenue to bring the deficit in line.

While there were significant increases in income tax in January and February, the Israel Tax Authority’s revenues fell 9% (in real terms, which takes inflation into account) from the same period in 2012. NIS 2.3b. worth of tax refunds – which at triple the amount of last February, the ministry said, were unusually high – contributed to the lower overall revenue.

In addition, expenditures in government offices rose 5.4% over the same period last year, while expenditures on civil services rose 7.2%.

Defense spending only rose 0.5%.

The problem is unlikely to go away anytime soon. While new tax policies went into effect at the start of the year, the budget is currently operating on a one-to-12 system, which mimics the previous year’s budget on a month-to-month basis.

Until the government passes a new budget, the expenditures will remain fixed, regardless of the tax revenues. Once a new government is formed, it has 45 days to pass a budget for the year, though Prime Minister Binyamin Netanyahu has signaled he wants a legal amendment to extend that time frame to 90 days.

That could mean a new budget, and the mandatory spending cuts and revenue changes needed to bring the deficit down, won’t be put into effect until mid-June.