• Continued rapid growth and the composition of demand led to unexpectedly brisk revenues, resulting in favorable fiscal aggregates in 2007 as in 2006. The government deficit excluding net issue of credit was zero, the lowest in twenty years and far below the target ceiling. The general-government deficit, measured according to the National Accounts definitions used in developed countries, was 1.0 percent of GDP as against 1.2 percent in 2006. 
  • The combination of a balanced budget, continuing growth, and currency appreciation caused the general-government debt/GDP ratio to fall even more precipitously than had been expected at the beginning of the year. The ratio at year's end, 80.6 percent, remains high by the standards of developed countries but the gap has narrowed significantly in recent years. 
  • The public expenditure/GDP ratio has been falling steadily since 2002 and ended 2007 at 44.9 percent, the lowest level since the late 1960s. Thus, Israel’s ranking among developed countries fell from the top of the scale at the beginning of the decade to the middle. Alongside the improvement in the fiscal aggregates, in the short and medium terms the drop in public expenditure resulted in a decline in the quality of civilian services, which also contributed to an increase in poverty and social inequality. 
  • The public expenditure/GDP ratio fell in 2007 due to rapid growth of GDP, whereas expenditure rose swiftly in real terms. Additionally, the government made long-term decisions that augur an increase in expenditure in coming years at a pace that is not only inconsistent with continued significant reduction of the debt/GDP ratio but also surpasses the maximum rate of increase that current law allows. 
  • Pursuant to the trend in recent years, government expenditure underperformed in 2007, chiefly in the outlays of civilian ministries, which were 2.3 percent lower than the budget. A large part of this underperformance derived from overbudgeting on certain items, on which there was underperformance in previous years too. 
  • Even though statutory tax rates continued falling, the tax burden edged upward in 2007 due to the increase in activity and its changed composition. Israel's ratio of taxes to GDP rests in the middle of the distribution of developed countries. 
  • The budget policy in the years to come will be tested by its ability to strike a balance between two necessities: continued lowering of the public debt/GDP ratio and meeting of needs in both defense and social services, given the erosion of the latter in recent years. 
  • By staying within the legislated ceiling of expenditure increase and implementing tax cuts already decided upon, it will be possible in coming years to lower the ratios of debt and deficit to GDP significantly if economic growth continues. As a result, however, civilian expenditure excluding interest will increase by less than 1 percent per annum during these years, making it difficult to respond adequately to society's needs. 

General Government, its Output and its Financing - Full File