Bottom line: The budget data for June showed a deterioration, for the first time this year. The problem is concentrated on the revenue side and may be a temporary phenomenon, but the latest numbers raise warning flags as to the viability of the fiscal strength that has characterised 2014 to date. The data for the next month or two will need to be scrutinized, but the security situation is certain to have a dampening effect on economic activity and hence on tax receipts in July.
- The deficit for June amounted to NIS4.9bn (about $1.4bn), much the largest so far in 2014, and considerably higher than the NIS3.7bn (about $1.05bn) deficit recorded in June 2013.
- The twelve-month trailing deficit, as a percentage of GDP, rose for the first time this year, from 2.4% in May to 2.5%. However, there were one-month rises in this measure during 2013, which did not mark the end of the declining trend in place since February 2013.
- Revenues ran below expectations, for the first time in 2014. The rise in tax revenues from income tax on salaries and on self-employed persons was small, while a sharp decline was recorded in tax payments by corporations.
- VAT receipts declined by 6.9% in real terms, compared to June 2013. However, last June saw a surge of buying of cars and household appliances, ahead of tax increases in the budget — so that comparison between the two months may be misleading
- Spending by civilian ministries in the first half of the year has been below budgeted levels, but the projected 7% decrease in defense spending has not materialized – it has fallen by less than 1%, and the current escalation of fighting around the Gaza Strip seems certain to boost defense spending further.
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