Israel's defense budget up 9%

Gaza operation

The budget deficit rose to 2.7% during the past 12 months.

Government defense spending is setting new records: since the beginning of the year, the Ministry of Defense has been given NIS 26.5 billion, 9.1% more than during the corresponding period last year, according to revised state budget performance figures for May published today by the Ministry of Finance Accountant General. Spending by the civilian ministries was up 4.6% during the same period, compared with the corresponding period last year. The budget deficit rose to 2.7% during the past 12 months, even though the country is being run on a temporary budget with a constrictive fiscal policy.

In annualized figures, defense spending stands at over NIS 63 billion, meaning that at a time when a temporary budget is in operation (one twelfth of last year's budget being spent every month this year), the Ministry of Defense is receiving the highest gross budget in its history.

The increase in defense spending is attributable mainly to money given to the Ministry of Defense in the framework of the exceptions committees. "Globes" asked Ministry of Finance spokesmen for the cumulative amount approved by the exceptions committee for the Ministry of Defense. Under the law, the Ministry of Defense receives each month one twelfth of what it received during all of 2014. The defense budget in the 2014 budget is the original budget approved by the Knesset, NIS 51.2 billion. The NIS 9 billion supplement received by the Ministry of Defense in 2014 is not included in the calculation of the temporary budget.

Beyond the steep rise in defense spending, the budget performance figures published today indicate some faltering in state tax revenues. May tax revenues were NIS 200 million lower than the forecast derived from proposed 2015 state budget (the budget was not approved because elections were brought forward). This is the first month this year in which tax revenues were less than the forecast. The May figures make it less likely that a revised state revenue forecast will be published in the framework of the new budget to be submitted by the Netanyahu-Kahlon government.

Housing purchases for investment account for 30% surge in state purchase tax revenues

At the same time, the cumulative figures for January-May still show a NIS 3.4 billion surplus in tax revenues. Tax revenues were particularly high in January and March. Tax revenues since the beginning of the year totaled NIS 114.4 billion, a 4.9% nominal rise, compared with the corresponding period last year. Real estate tax revenues surged in May 2015: revenues from purchase tax rose 30% and revenues from betterment tax were up 11.4%, compared with the corresponding period last year.

The Ministry of Finance explains that most of the rise was in the Tel Aviv region and the coastal plain, "as a result of deals in income-producing real estate and increased in housing purchases by housing owners." The tax brackets for these housing purchasers were raised significantly, compared with the tax brackets for those purchasing a first apartment, and Minister of Finance Moshe Kahlon is considering a further raise in the brackets, in order to push those already owning homes out of the market.

The budget deficit for the past 12 months rose from 2.53% in April to 2.7% in May, owing to the failure to meeting the tax revenues forecast in May and the steep rise in defense spending. The budget surplus since the beginning of the year totaled NIS 500 million.

Published by Globes [online], Israel business news - www.globes-online.com - on June 7, 2015

© Copyright of Globes Publisher Itonut (1983) Ltd. 2015

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