Deficit edges up to 4.9% of GDP in October; Finance Ministry’s 2026 target of 3.2% seen as overly ambitious

ISRAEL - In Brief 11 Nov 2025 by Sani Ziv

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Fiscal deficit widens to 4.9% of GDP in OctoberThe Ministry of Finance reported yesterday a fiscal deficit of NIS 15.3 billion ($4.64 billion) in October, with the trailing 12-month deficit slightly increasing to 4.9% of GDP from 4.7% in September. The budget deficit peaked at 8.5% of GDP in September 2024. Tax revenues in October totaled NIS 43.4 billion and reached NIS 432.3 billion since the beginning of the year, a 15.7% nominal increase compared to the same period in 2024. In constant tax rates, tax revenues have increased by 5.9% in real terms since the beginning of the year (compared with January-October 2024), a relatively high rate. Direct tax revenues rose by 8%, indirect tax revenues increased by 3%, and government fees grew by 11%. The relatively modest rise in indirect taxes reflects weaker private consumption. Since the beginning of the year, government expenditure has increased by 4.0% compared to the same period in 2024. This growth reflects an even rise in civilian spending (4%) alongside a 3.8% increase in defense expenditure. In October alone, government spending totaled NIS 58.7 billion, with defense expenditures reaching NIS 13.2 billion. Implications of October’s fiscal data The deficit remains relatively favorable, mainly due to higher tax revenues. However, expenditures are still elevated, keeping the annual pace of the deficit around 4% of GDP. Budgetary pressures are expected to ease somewhat with the release of reservists and lower defense spending. Looking ahead Finance Minister Bezalel Smotrich presented the 2026 budget framework with a deficit target of 3.2% of GDP, alongside plans to reduce income taxes and encourage investment. The propo...