'Lower tax revenues won't affect spending'

The country's budget surplus narrowed in April to NIS 100 million as income tax revenue declined, the Finance Ministry said.

The Finance Ministry is not planning to trim government spending in 2008, even if the budget deficit widens, said the ministry's director-general Yarom Ariav in response to the expected slowdown in revenues from tax collections this year. "Even as tax collections over the last four months still show a surplus of NIS 1 billion over our expectations, we know economic indicators are generally delayed," said Ariav at the first annual conference on public sector wages organized by the Finance Ministry's outgoing director of wages Eli Cohen on Monday in Jerusalem. "Parts of the world, and in particular the US, are experiencing a financial crisis, and the economic tsunami is also going to affect us. There are more and more economic indicators strengthening the forecast of moderate economic growth for this year. But even if revenues from tax collections fall and the budget deficit widens we will not cut government spending." Ariav explained that the economy had different mechanisms that can be adjusted to the situation without having to cut spending. "However, the developments need to be watched closely," said Ariav. The Finance Ministry on Monday released its monthly figures for tax revenues and the budget. The country's budget surplus narrowed in April to NIS 100 million as income tax revenue declined, the Finance Ministry said. The surplus narrowed from NIS 816m. in the same period of last year. For the first four months, the surplus was NIS 5.66 billion, compared with NIS 7.22b. "There is a trend of declining revenue from direct taxes," the ministry said. Gross domestic product is likely to expand 3.2% this year, its slowest pace since 2003, as a global slowdown hurts demand for Israeli exports. Tax revenue will fall "sharply'' as a result, Finance Ministry Budget Director Ram Belinkov told the Knesset finance committee on April 28. Revenue from direct taxes declined to NIS 8.9b. in April, from NIS 9.1b. a year ago. Company taxes fell 18 percent, while taxes from capital market transactions fell 43%, as share prices declined, the ministry said. Ariav praised the wage director's work in forging significant salary agreements in the public sector. "We are very lucky in that we managed to hammer out collective salary agreements in good time, just before entering into a period of uncertainty over the future direction of the economy, at a time when the world economy is set to experience a slowdown," said Ariav. "Imagine what would have happened if we still had to deal with these salary issues amid a slower rate of economic growth and the increase in food prices." Bloomberg contributed to this report.