Budget deficit remains stable in May despite the war; stronger tax revenues support fiscal outlook

ISRAEL - In Brief 10 Jun 2026 by Sani Ziv
Israel's fiscal deficit remained broadly unchanged in May at 3.8% of GDP (more precisely, 3.75%), equivalent to approximately NIS 81 billion. The monthly deficit in May totaled NIS 8.3 billion, broadly similar to the deficit recorded in May 2025. Overall, the fiscal data remain favorable for the government. Despite the war with Iran in March and early April, the government recorded a cumulative surplus of NIS 1.8 billion during the first five months of 2026, compared with a deficit of NIS 15.6 billion during the same period in 2025. The positive fiscal performance continues to be driven primarily by strong tax revenues, particularly direct taxes. On a uniform-tax-rate basis, direct tax revenues increased by 12% year-on-year during January-May, equivalent to roughly NIS 16 billion. Capital-market-related tax revenues accounted for approximately NIS 3 billion of this increase, while the remainder reflect continued growth in the high-tech sector, strong labor-market conditions among high-income earners, and resilient corporate profitability. In contrast, indirect tax revenues increased by only around 2% year-on-year, highlighting the more moderate pace of growth in private consumption and domestic demand. Government spending also remained relatively restrained. Total expenditure increased by only 1.4% year-on-year during January-May, partly reflecting the constraints imposed by the continuation budget during the first quarter of the year. Government expenditures totaled approximately NIS 259.5 billion, compared with NIS 255.8 billion during the corresponding period last year. Compensation payments related to the war are currently estimated at approximately NIS 3.8 billion...

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