Israel's fiscal deficit holds at 5.0% of GDP in June, but risks remain

ISRAEL - In Brief 10 Jul 2025 by Sani Ziv

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The Ministry of Finance reported a fiscal deficit of NIS 16.4 billion ($4.888 billion) in June, with the trailing 12-month deficit unchanged at 5.0% of GDP. In September 2024, the budget deficit had peaked at 8.5% of GDP. Tax revenues in June were disappointing, falling 6% in real terms and at constant tax rates compared to June 2024. The weakness was partly due to a sharp drop in purchase tax receipts and partly reflects tax deferrals granted to companies affected by the war. Looking at the figures since the beginning of the year, tax revenues totaled NIS 259.6 billion—a 15.9% nominal increase and a 5% real increase (at constant tax rates) compared to the same period in 2024. As for expenditure, these rose by only 2.4% since the start of the year—thanks largely to a decline in defense spending. Civilian spending, by contrast, increased by 5.8%. In June alone, total government spending reached NIS 52.0 billion, with defense expenditures totaling NIS 14.1 billion, unchanged from May. Implications of the June fiscal data Most war-related expenditures, such as ammunition and interceptor replenishment, were drawn from existing stockpiles and have not yet materialized as cash outflows. Payments to reservists are expected to be recorded in July, along with tax revenues reflecting June economic activity. As a result, a notable increase in the monthly deficit is expected in July. That said, as previously estimated, the fiscal deviation stemming from the Iran-Israel war appears limited to around 0.5 percentage points of GDP. Thanks to strong tax revenues in early 2025, the full-year deficit is still expected to reach approximately 5.5%. Government debt issuance (NIS billion) an...