The Israeli economy’s dependence on technology giant Nvidia is rising. The company not only rescued the country’s GDP during the recent war, but it is also responsible for the reduction in government debt and for curbing the fiscal deficit. According to economists’ estimates, the fiscal deficit for 2026 will be just 4% of GDP, significantly lower than the Ministry of Finance’s target of 4.9%, mainly thanks to the taxes that Nvidia pays.
Leader Capital Markets chief economist Jonathan Katz estimates that the deficit this year will be 4% of GDP, lower than the target, but much higher than in the years that preceded the war, which led to expansion of government spending without corresponding budget adjustments.
Tax revenues so far this year are 13.3% higher than in the corresponding period of last year, with much of the increase attributable to Nvidia. Katz estimates that Nvidia pays tax at a rate of 7.5% on net exports from Israel. "This amounts to NIS 2.5 billion in tax per quarter, or about 0.5% of GDP, and it may be even more than that in the second half," he says.
Katz estimates the amount of tax collected from the national accounts, in particular from the "exports that do not pass the borders of the state" item, or "deemed exports", a term that mainly applies to technology companies. The assessment on the market and in the government is that this mainly relates to Nvidia, which is registered in Israel and develops products here, but these are manufactured outside the country and exported from the place of manufacture to its customers. These exports have grown dramatically in recent years, and have changed the face of the Israeli economy.
Central Bureau of Statistics data show that economic growth was 3.5% last year, but that without Nvidia it would have been just 2.1%. Katz’s analysis of the Central Bureau of Statistics data finds that between the second quarter of 2024 and the second quarter of 2026 economic growth was officially 10%, but that without Nvidia and the activity of similar companies it would have been just 6.6%.
Exports that do not pass the borders of the state shot up by 74%, or $7 billion, last year in comparison with the previous year. This is a matter of Israeli companies that develop products in Israel but produce and sell them overseas. Their revenue is classed as Israeli exports, even though the products themselves are not produced in Israel and do not pass its borders. Over the years, this item has been fairly stable at about $2 billion per quarter, but the rise sharpened considerably in the first quarter of this year when the figure rose to $8 billion.
Main tax engine
Tax revenues have also been impacted by other factors: the acquisition of Wiz by Google and deepening of collection following the trapped profits and "Israel invoices" reforms. In addition, Katz explains, "Some of the growth in payments to those drafted into the reserves returns to the state through taxes on spending, which rose by 5% in real terms."
Katz says that although the higher tax collection is good news, it hides some worrying points beyond the growing dependence of the Israeli economy on a single company. "In the coming quarters, Nvidia will continue to contribute substantially to tax revenues, but there is uncertainty over the ability to rely on continuing collection in such high amounts in the coming years," he says.
To that must be added the growing structural deficit. The reasons for that lie in the defense budget, which has almost tripled since the outbreak of war, and the high debt:GDP ratio (68.5%), leading to heavy debt servicing costs. Apart from that, civilian spending is in the lowest third of the OECD countries, when the economy is crying out for investment in education, infrastructure, and other civilian services - a collection of challenges that the governor of the Bank of Israel calls "the fiscal trilemma" that will face the next government.
Bank Hapoalim chief markets strategist Modi Shafrir points to the fact that Israel’s risk premium is on the rise according to various measures, among them comparison of the local government bond market to the markets of the US and Germany, where the gradient of the curve has risen appreciably (although mainly because of different interest rate conditions) and a moderate rise in the CDS (credit default swap) premium in Israel and in other markets.
Shafrir attributes this rise to the recent sharp rise in bond yields around the world, to a rise in the risk premium, and possibly also to fears about the results of the election. "It’s not a drama at the moment, but it’s certainly a point that we should pay attention to," he says.
Published by Globes, Israel business news - en.globes.co.il - on October 12, 2026.
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