Bank Leumi (TASE: LUMI) analysts estimate that the fiscal deficit to GDP ratio for 2013 will be in the range 4.0-4.5%, which is lower than the target set by the Ministry of Finance in May, of 4.65%.
Leumi says that the fiscal deficit has been on a downward trend since February this year, with the deficit:GDP ratio reaching a 13-month low of 3.8% in July, which compares with an average of 4.4% in the period January to June.
"The declining trend in the government deficit is a result of a rise in tax revenues. In the period January to July, revenues were 6.6% higher than in the corresponding period of 2012. The main factor is domestic VAT. Domestic VAT collection totaled NIS 41.2 billion in January-July 2013, compared with NIS 34.7 billion in the corresponding period of 2012 (growth of 18.7%), against a backdrop of the rise in the VAT rate in June. Collection resulting from higher tax rates totaled NIS 6.7 billion (NIS 2.5 billion in direct taxes and NIS 4.2 billion in indirect taxes), and there was also a substantial amount of tax collected of a one-time nature."
At the same time, Leumi points out that "discounting the effect of hikes in taxation rates, total state revenues from taxes rose by a moderate 1.5% in real terms in January-July this year in comparison with the corresponding period last year, which reflects, among other things, economic indicators of weak domestic demand in the economy."
Leumi also estimates that, "if budget performance is exceptionally better than the original target, and if it turns out that it contains a substantial component that is not of a one-time nature, then towards the end of 2013 there may be adjustments (government expenditure brought forward) which will have consequences for 2014. It should also be remembered that tax revenues can be expected to rise moderately next year because of expected tax rate rises. All the same, as far as the main scenario is concerned, it appears that the deficit target of 3% of GDP in 2014 is very challenging."
Published by Globes [online], Israel business news - www.globes-online.com - on August 15, 2013
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