Bottom line: The Treasury hit a home run in January, getting its budget performance in 2014 off to a very strong start. The key features were strong revenues, even after accounting for one-off items and the impact of tax rises enacted last year, as well as continued restraint in spending. Obviously, the question is whether these trends will be maintained during the year. This seems unlikely, but January suggests that is by no means impossible.
- The fact there was a budget surplus in January is not surprising – there usually is in that month. What WAS surprising was it size – NIS4.4bn – and the contributing factors.
- Revenues were up in almost every area, including VAT, which had been sluggish in previous months. Net VAT receipts rose by 17.5% over January 2013, and even VAT on imports posted 3% rise, despite the shekel’s continuing strength.
- Income tax receipts were boosted by the tax take on Google’s purchase of Waze. However, after discounting for this and for the higher tax rates in force in January compared to 2013, revenues were still up 6.6%. .
- A potentially significant negative feature in an otherwise strongly positive month was the 4.5% decline in income tax deductions at source – mainly from salaries. This stands in contrast to the massive (57%) increase in corporate income tax and healthy 11% rise in collection from self-employed (all comparisons with January 2013).
- On the spending side, defence spending once again stood out, swallowing 8.1% of its annual budget in January, compared to 6.1% of overall ministry outlays.
- Revenues from capital gains tax more than doubled, reflecting the strong equity market through January.