Budget deficit is lowest in 20 years

Income from tax revenues generated NIS 223.2b. in 2007, which was NIS 14.5b. higher than planned.

The government's budget deficit in 2007 was 0.02 percent as a measure of gross domestic product, the lowest in 20 years, the Finance Ministry said Tuesday. Excess tax revenues, strong economic growth and low government expenditures were the main contributing factors, it said. "Preliminary estimates show a budget deficit of NIS 100 million or 0.02% of GDP for 2007, compared with the government's original target of 2.9% of GDP, or NIS 18.7 billion," the Finance Ministry said in a statement. "In nearly every main category of government income, revenue was higher than originally planned. Tax income increased by 7% in 2007 compared with the previous year." Income from tax revenues generated NIS 223.2b. in 2007, which was NIS 14.5b. higher than planned, while government expenditures were 98.2% of the forecast amount. "Despite Israel's relatively high public-debt stock of 82% of GDP [expected for 2007], the government has an excellent track record," according to Merrill Lynch research analyst Haim Israel. "Sound fiscal policy not only helps to lower debt stock, but also the risk premium, and helps the Bank of Israel to control inflation." Government debt, as a percentage of GDP, will narrow by 5 or 6 percentage points in 2007 from 86% in 2006, 95% in 2005 and 101.7% in 2003, the Finance Ministry said. In a meeting with journalists at the end of December, Finance Minister Ronnie Bar-On said the GDP/debt ratio was expected to drop to 78.9% in 2008. The government's target is to gradually bring the figure to below the 60% average for OECD countries. "Israel has delivered smaller-than-targeted budget deficits for the past four years," Merrill Lynch's Israel said. Israel expected expected the budget deficit to post a surplus of 0.3% of GDP in 2007, compared with the government's target of 2.9% and the previous year's deficit of 0.9%. Commenting on the preliminary budget deficit for 2007, the Finance Ministry said the December deficit of NIS 8.1b. almost eradicated the surplus accumulated during the previous 11 months. Looking ahead, the budget for 2008 set the deficit ceiling at 1.6% of GDP. The government is seeking to contain spending growth and keep it within the 1.7% annual limit it has set to help reduce public debt, even as it comes under fire within the coalition for failing to spend enough to improve schools and narrow social gaps to tackle poverty. "The challenge ahead will be maintaining fiscal strength with slowing domestic economic activity and tax revenues," Israel said. "Hence, we forecast a budget deficit of 1.2% for 2008 and 1% for 2009."