​Summary:

  • There were positive developments in the fiscal aggregates in 2006, constituting a significant achievement for budgetary policy. Aided by rapid economic growth and one-off income, and despite the costs incurred by the fighting in the north ,the budget deficit was well below both the deficit ceiling and its level in 2005, The general government deficit, measured according to the National Accounts definitions used in developed countries, also declined, to 1.8 percent of GDP, compared with 3.3 percent in 2005 and 6.1 percent in 2003.  
  • The public debt/GDP ratio plummeted in 2006 ;after rising significantly at the beginning of the decade it reverted to the level seen in 2000.  
  • Despite the achievements, security developments in 2006 and social gaps underlined the challenges facing the government in formulating fiscal policy for the next few years.  
  • The reduction of the deficit and the debt/GDP ratio in recent years derived mainly from the reduced share of public expenditure in GDP; this has fallen by 5 percentage points since 2003 to stand at its lowest level since the late 1960s in 2006. The composition of expenditure has remained virtually unchanged since the beginning of the decade.  
  • The public debt/GDP ratio has remained high in comparison with the developed countries, but its decline in 2006 has significantly reduced this difference. The continued decline of the deficit/GDP and public expenditure/GDP ratios puts Israel somewhere in the middle of the distribution of the developed countries with regard to these indicators, after many years in which it was at the upper end.  
  • The tax burden in Israel-especially on wages-is similar to that in the developed countries and is expected to continue declining in the next few years.  
  • Expenditure by the civilian ministries remained low relative to the budget. Even though this contributes to fiscal control ,it impacts on the efficiency of budgetary allocation and the transparency of priorities.  
  • The main challenge of budgetary policy in the next few years will be to balance the need to continue reducing the public debt/GDP and deficit/GDP ratios-so that fiscal policy can continue to support economic expansion, and interest payments will continue to decline-with the need to respond to both security needs and the rise in poverty in recent years. The expenditure ceiling set by the government and avoidance of tax reductions further to those already resolved, will make it possible in the next few years to achieve a significant reduction of the debt/GDP and deficit/GDP ratios, provided economic growth persists, but the government is yet to submit a program indicating how it will cope with security needs and social gaps in this framework. A detailed long-term budget plan could significantly increase the credibility of the various objectives.  


General Government and its Financing - Full File