The tax shortfall will total NIS 3.5 billion for 2011, and the budget deficit will therefore by 3.4-3.5% of GDP, 0.5% above the target, Ministry of Finance officials told "Globes".
The Ministry of Finance takes solace in that the shortfall comes from the revenues side, and will not be the result of breaching the spending ceiling, which was kept in 2011. Although the deficit target will be exceeded, the ministry is less worried by the actual figure, which is negligible, and is more concerned that the shortfall is due to the effects of the global economic slowdown on the Israeli economy.
The Ministry of Finance is worried that the reduction in tax revenues is concentrated in the last part of the year, a clear indication of a downward trend, caused by the global economic slowdown affecting the local economy. "We will end the year around the target, which is good. We're not worried by a deviation of half a percent one way or the other, but by the uncertainty. We planned for the deficit to act as an automatic stabilizer, and that's what happened," said a ministry source.
A new reality
The main problem for the Ministry of Finance is only just beginning. In 2012, the deficit is expected to be at least 3.5% of GDP. The biennial budget, set in 2010, sets a very ambitious deficit target of just 2% of GDP - which all agree is a totally unrealistic target.
This is why the Ministry of Finance is planning to exploit the start of the new fiscal year to update its revenues forecasts, and thus revise the deficit forecast downward, the sources said. The ministry does not normally revise its targets and forecasts, because, in contrast to the Bank of Israel, the ministry's figures have practical significance.
However, the biennial budget, Minister of Finance Yuval Steinitz's flagship project, requires a revision because of the deviations. The 2012 budget was prepared in mid-2010, 18 months ago, when the economic climate was completely different.
Therefore, all the senior Ministry of Finance officials - the director general, accountant general, budget director, state revenues supervisor, Israel Tax Authority director, and research and economics department director - will meet to prepare a new budget framework.
The updates are part of the staff work to prepare a comprehensive plan to deal with the global economic crisis, which is worsening and expected to affect the Israeli economy. An important part of the plan, as was the case with the previous economic crisis, will be government guarantees to deal with a credit crunch.
Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011