Encouraging August fiscal data for the Treasury, but risks persist ahead of the 2026 budget

ISRAEL - In Brief 08 Sep 2025 by Sani Ziv

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Yesterday, the Ministry of Finance published positive budget data for August. Revenues came in stronger than expected, while the deficit narrowed more than anticipated, with the trailing 12-month deficit narrowing to 4.7% of GDP from 4.8% in July. The improvement largely reflects a sharp acceleration in tax revenues during July and August (11% in constant tax rates in August alone), particularly income tax, though the underlying reasons remain somewhat unclear. Year-to-date, tax revenues reached NIS 367.6bn, a 16.6% nominal increase versus the same period in 2024. On the expenditure side, government spending was up 3.6% y/y, exceeding the -0.3% contraction originally planned in the budget. The deviation stems mainly from the additional NIS 31bn allocated to defense following the Iran war and “Operation Gideon’s Chariots”. Even so, the execution rate of expenditure stands at 66%, compared with 71% on the revenue side. The revenue outperformance is notable against the backdrop of relatively modest expected GDP growth this year (around 2.5% real). It likely reflects temporary factors such as excess payments to reservists (taxable income) and the realization of previously deferred capital gains (“trapped gains”) by corporations and individuals. Some of the stronger revenues may also reflect taxpayers bringing forward profit distributions in order to benefit from temporary tax incentives. Implications of August’s fiscal data At the current pace of revenues and expenditures, the deficit could converge toward 5%-5.5% of GDP in 2025, broadly in line with the government’s revised forecast of 5.2%. The real challenge, however, is set to emerge already in Q4 2025 and intensify in...