Fiscal deficit in 2025 falls to 4.7%, well below forecast

ISRAEL - In Brief 14 Jan 2026 by Sani Ziv
Israel’s fiscal deficit narrowed more than expected in 2025, falling to 4.7% of GDP from 6.8% in 2024 and below the original 5.2% target. Nominal government spending rose by 4.8%, while revenues surged by 13.8%. Tax collections surprised on the upside even after accounting for the tax hikes implemented at the start of 2025. Fourth-quarter revenues were NIS 3 billion above the updated forecast published by the Ministry of Finance in October 2025. Excluding legislative changes, tax revenues increased by a solid 6% in real terms over the year. The NIS 98 billion deficit was financed through a diversified mix: NIS 64 billion in net domestic issuance, NIS 15 billion in net external financing, NIS 13 billion from privatization (mainly land sales), and NIS 6 billion drawn from deposits—reflecting excess funding raised in prior years. Looking ahead, the official 2026 deficit target of 3.9% of GDP appears somewhat ambitious. Our baseline sees the deficit closer to ~4.3%, a level we still view as manageable from a financing standpoint. Fiscal deficit undershot expectations in 2025 The 2025 fiscal results are particularly encouraging, as we have noted before, largely reflecting strong tax revenues. In December alone, tax collections totaled NIS 43.9 billion, bringing total tax revenues for 2025 to NIS 519.5 billion, an increase of 14.1% in nominal terms compared with 2024. Part of this increase was driven by statutory measures, including the VAT hike to 18%, the non-indexation of income tax brackets, and the tax imposed on retained earnings (undistributed profits accumulated over time). That said, as we have also noted previously, revenue growth was significantly stronger than wo...

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