Israel Finance Ministry Trims GDP Forecasts But Sees Surge In Tax Income

Israel is on track to collect 45.5 billion shekels ($13 billion) more than initially expected in revenue in 2022, the Finance Ministry said on Thursday as it also trimmed economic growth forecasts.

The ministry projects revenue of 456.6 billion shekels this year, 429 billion coming from taxes alone.

A robust economy and a jobless rate that has fallen to some 3% has boosted tax income by 22% so far this year, leading to a balanced budget in May while the Bank of Israel foresees a budget deficit of 0.7% of gross domestic product (GDP) in 2022.

In addition to higher revenue, state spending has dropped and is expected to remain tight into next year since there won't be a 2023 budget until well after the Nov. 1 general election.

After a 8.2% spurt in 2021 as Israel emerged strongly from the COVID-19 crisis, the ministry forecasts 4.9% growth in 2022 and 3.5% in 2023 -- down from prior estimates of 5.1% and 3.6%, respectively.

Growth, it said, will be led by solid annual gains in consumer spending, exports and investment, albeit slower than double-digit increases in those categories in 2021.

Inflation at the end of 2022 is forecast at 4.2%, compared with 4.1% in May, and 3% in December 2023. This is well below levels of Western peers but above a government target of 1-3%.

"Inflation rates are influenced, on the one hand, by an expansionary monetary and fiscal policy that was introduced during the corona period and stimulated domestic demand, and on the other hand, by global developments that negatively affected the supply side," the ministry said.

It added that the Ukraine-Russia conflict had caused a spike in wheat and fuel prices, partly due to sanctions on Russia, while China's zero tolerance policies on corona has caused significant global supply chain disruptions.

The central bank this week cuts its forecast for Israeli economic growth this year to 5% from 5.5% and to 3.5% from 4% in 2023. It also expects inflation rates of 4.5% and 2.4% in 2022 and 2023 and has raised rates to 1.25% from 0.1% since April -- 50 basis points coming on Monday -- to contain price pressures.

($1 = 3.4839 shekels)