Tax revenues decline in November, but level remains high

ISRAEL - In Brief 11 Dec 2022 by Jonathan Katz

---

Tax revenues on a downward trend In November, the fiscal deficit reached 1.2bn ILS (0.5bn last year), and the fiscal surplus in the last 12 months reached 0.4% GDP (0.5% last month). Tax revenues are up by 14.8% y/y (nominal) in January-November while expenditures (non-Covid) are up 5.6% compared to the 6% allocation increase. More worrisome was the 10% y/y decline in tax revenues in November (in real terms), although this is largely due to the spike in revenues in Nov 21. Nevertheless, the MoF notes soft tax revenues since the March peak, a trend we expect to continue due to weaker growth, declining real-estate activity and declining capital gains taxes from the hi-tech sector. Business sector sentiment remains steady The CBS Business Tendency Survey in November points to steady and positive economic activity, with improving expectations for the next 3 months. Most sectors expect expansion in activity; industry sees domestic and export orders up. The hi-tech service sector expects export growth next month, despite slowing job creation (although still net positive balance). Monetary policy: Recent economic data (especially November’s Business Survey) suggests steady growth which enables the BoI to continue tightening. Until the next rate decision (Jan 2nd) November’s CPI will be released (we expect inflation to accelerate from 5.1% y/y to 5.4%), as well as several economic indicators (such as employment). At the moment, a 0.5% hike appears likely. FX: The shekel weakened last week by 1.2% against the dollar and by 1.4% against the Euro on the back of declining equity markets abroad. which require Israeli institutions to purchase FX in order not to reduce the FX exposur...