Fiscal deficit reaches 7.2% GDP LTM

ISRAEL - In Brief 06 Aug 2020 by Jonathan Katz

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July’s fiscal deficit reached 12bn ILS compared to a deficit of 2bn in July 19. The fiscal deficit in the last 12 months reached 7.2% of GDP compared with 6.4% last month. Expenditures (excluding additional outlays for the Covid crisis) actually declined in January-July by 0.4% y/y, as the result of a lack of an approved budget in place, which is actually restrictive. So far only 38% of all the additional expenditure earmarked for the crisis has been spent. On the tax side, revenues are down 6% y/y so far this year, but income tax on workers actually increased by 5% y/y in January-July (mostly in Q120, but income tax in July is up 3% y/y). We note that those out of work are mostly low-income workers who pay little tax. Domestic VAT is down only 1.3% y/y so far this year, an indicator that private consumption remains fairly stable. Recent data regarding credit card purchases also suggest stable PC. Assuming an additional 50bn ILS deficit in August-December 2020 (above last year’s years deficit in Aug-Dec), we see the total fiscal deficit this year reaching 147bn ILS or about 10% of GDP, below the official MoF/BoI forecast of 13%. This assumes Israel does not enter another total lockdown.