•  In 2005, the government deficit was substantially lower than the deficit ceiling and the 2004 deficit. The general-government deficit, measured according to the National Accounts rules,2 also declined, to 2.9 percent of GDP as against 4.9 percent in 2004 and 5.9 percent in 2003. 
  • The public-debt/GDP ratio fell considerably in 2005, for the first time since 2000. 
  • The deficit and debt/GDP ratio decreases traced mainly to a decline in the share of public expenditure in GDP. This indicator has fallen by 5 percentage points since 2002 and was below 50 percent in 2005 for the first time since 1970.  
  • The ratios of public debt, deficit, and general-government expenditure to GDP remained high by the standards of developed countries, although the decreases have narrowed the gaps. In contrast, Israel’s tax burden, especially in respect to wage taxation, resembles the accepted levels in these countries and is expected to continue falling in the coming years. 
  • By honoring the cap on expenditure increases and avoiding tax cuts beyond those already decided upon, the government will be able to lower the debt and deficit ratios to GDP appreciably over the next few years, if growth continues. The increase in general-government employment relative to total civilian employment in 2005, however, indicates that staying within the expenditure ceiling in the long run will be a challenge. 
  • If the 2006 budget will be based on the current legal deficit ceiling of 3 percent of GDP, primary government civilian expenditure will increase significantly relative to 2005 performance, holding the decline in the debt/GDP ratio to a moderate extent. Adopting a lower expenditure trajectory will allow the government to distance itself more quickly from the current debt level, which exposes the economy to risks in the events of adverse developments in the global economy and the security situation. Such a trajectory would also give the government more latitude in the future in smoothing the effects of external and security shocks on economic activity. 

General Government and How It Is Financed - Full File