Bottom line: The positive trend in the budget continued through May. The key numbers showed further improvements and the only sources of concern were “second derivatives” — meaning the rate of change of the main trend. This is slowing, so that the chances of the fiscal situation improving further are low — but with five months of 2014 gone, and barring negative shocks, this year’s budget deficit should be significantly below target. The focus now moves to the 2015 budget, which the government will shortly begin debating.
- After five months of regular activity (in 2013 there was no authorised budget until July and special procedures were in place regarding spending), the government budget shows a surplus, albeit only of NIS0.8bn — compared to a deficit of NIS6.5bn for the same period last year.
- The twelve-month trailing deficit, as a percentage of GDP, declined another ‘notch’, to 2.4% in May from 2.5% in April — levels not seen since before the global crisis.
- Revenues continue to exceed expectations, even after accounting for the higher rates in force this year and some one-off items. In particular, the increase in VAT receipts — of 8.2% in real terms, after allowing for the hike in the rate of VAT — casts some doubt on the severity of the fall in private consumption that was indicated by the GDP figures for the first quarter of 2014.
- The Treasury continues to highlight the fact that defence spending has risen slightly so far this year, although it should be lower than last year. This is part of the ongoing struggle between the Defence and Finance ministries over the size and trajectory of the defence budget, which will be the key issue in the upcoming budget debate.
- On the other hand, the rise in the spending of civilian ministries has so far been at a lower pace than that allowed them by the 2014 budget.
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