Israel Deficit Drops to 3.2% of GDP in August as Tax Revenues Rise
Israel's state deficit dropped to 3.2% of GDP at the end of August, totaling around 71 billion NIS. State revenues rose 9% to 47.9 billion NIS, driven by increased vehicle imports and consumption.
The government deficit at the end of August stood at 3.2% of GDP, amounting to approximately 71 billion NIS, marking a decrease of about 0.1% compared to the deficit at the end of July, according to budget execution and state tax revenue data published by the Ministry of Finance. The monthly deficit in August totaled roughly 7.9 billion NIS, compared to a deficit of about 9.6 billion NIS in the corresponding month last year. Since the beginning of the year, a deficit of about 19.2 billion NIS has been recorded, representing less than a 1% deficit.
However, the government has expended approximately an additional 9.8 billion NIS this year from the compensation fund, which is accounted for off-budget. Factoring in these additional funds means the actual deficit is higher. Nevertheless, it is important to note that the statutory deficit ceiling set by law for 2026 stands at 4.9%, and it currently appears that the year may conclude with a lower deficit, heavily depending on whether the state budget will be reopened to address defense establishment needs.
Government Expenditures and Revenues
The government deficit represents the gap between state expenditures and revenues. Government expenditures in August reached approximately 55.7 billion NIS, and since the beginning of the year, expenditures have totaled around 429.3 billion NIS, representing about 61% of the original state budget of approximately 698 billion NIS. This occurs despite roughly 66% of the year having passed, as expenditures traditionally peak toward the end of the year.
The growth rate in government expenditures compared to last year stands at only 3.6%, compared to a planned expenditure increase of 7.4% during the 2026 budget year. This gap reflects lower execution capacity by the government, though funds are ultimately expected to be disbursed in the final months of the year.
On the revenue side, the positive trend continues. In August, state revenues stood at 47.9 billion NIS compared to 43.9 billion NIS in August 2025, marking a 9% increase. Looking at the entire year, state revenues since January total 410.1 billion NIS, reflecting an increase of about 13.9% compared to the same period last year. Furthermore, 410 billion NIS accounts for about 69% of the annual revenue forecast, which has already been revised upward, even though only 66% of the year has elapsed.
Tax Revenue Dynamics
Focusing on tax revenues—excluding fee revenues and other receipts—and discounting legislative changes and exceptional revenues, tax revenues this month are only 4.6% higher compared to August 2025. The sharpest growth was recorded in indirect taxes (10.3%), while the growth in direct taxes was negligible (0.4%). This figure reverses the general yearly trend, where state revenues are 9.3% higher than last year, with growth primarily driven by direct taxes rather than indirect taxes.
Once again this month, the Tax Authority reports an exceptional income tax payment of 900 million NIS. The increase in indirect tax revenues this month is explained by the authority as the result of growth in vehicle imports and consumer spending in August 2026 compared to August 2025.
