Israel’s Finance Ministry reported that the country’s national budget deficit over the past 12 months hit 105.3 billion Shekels ($30 billion). This figure is equal to 5.6% of the country’s GDP, which is high.
It is not surprising that Israel saw an increase in the budget deficit, as well as in its debt, over the past year. This is because of the ongoing Iron Swords War against the terrorist group Hamas in Gaza. The war was sparked by the barbaric terrorist massacre enacted by Hamas on innocent Israeli civilians on October 7, 2023.
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Israel has been forced to spend a great deal on prosecuting the war. In addition to all of the weapons, fuel and other supplies used, hundreds of thousands of Israeli were called up to military reserve duty. The government needs to reimburse them for lost wages and their absence from their places of work puts an additional drain on the country’s economy.
Also, since the start of the war tourism in Israel has plummeted and tourism is a major part of the country’s economy. Almost all foreign airlines cancelled their services to Israel. The number of foreign visitors to the country is still down by 80% month to month from the previous year.
All of this mean cuts in tax revenue.
In February alone, the budget deficit was 13.4 billion Shekels ($3.7 billion).
The YTD (year to date) cumulative deficit for FY (financial year) 2024 is 10.9 billion Shekels ($3.03 billion), vs 16.9 billion Shekels ($4.7 billion) surplus over the same period in FY23. This is an $8 billion turn around.
Cumulative expenditure growth (including war expenditure) January-February 2024 over the same period in 2023 came to 16.3%.
Cumulative revenue growth from taxes January-February 2024 over the same period in 2023 was -0.3%.
Some foreign airlines have already restored their flights to Israel and the war in Gaza is not expected to as more than a few more months. The hope is that when it ends Israel’s economy will see a boom that will bring with it increased tax revenues. This, together with an end to the extra military expenditures will hopefully end the budget deficits.
