Israel’s deficit falls to 3.2% of GDP as tax revenues continue to climb
State revenues reached NIS 410 billion in the first eight months of 2026, up nearly 14% from a year earlier. Spending has risen much more slowly, although government expenditure is typically concentrated in the final months of the year.
The government deficit stood at 3.2% of GDP at the end of August, equivalent to about NIS 71 billion ($23.6 billion). This represents a decline of about 0.1 percentage point from the deficit at the end of July, according to data on budget execution and state tax revenues published Tuesday by the Ministry of Finance.
The monthly deficit in August was about NIS 7.9 billion ($2.6 billion), down from a deficit of about NIS 9.6 billion in August 2025.
Since the beginning of the year, the government has recorded a deficit of approximately NIS 19.2 billion ($6.4 billion), or less than 1% of GDP. However, the government has also spent approximately NIS 9.8 billion ($3.3 billion) this year from the compensation fund, which is recorded outside the state budget. Including this spending would result in a higher effective deficit.
The legally mandated deficit ceiling for 2026 is 4.9% of GDP, and the latest figures suggest the government could end the year below that threshold. The final outcome, however, will depend to a large extent on whether the state budget is reopened to accommodate additional defense spending.
The government deficit is the gap between government spending and revenue. Government spending in August totaled approximately NIS 55.7 billion ($18.5 billion), bringing total spending since the beginning of the year to about NIS 429.3 billion ($142.6 billion). That represents approximately 61% of the original 2026 state budget of NIS 698 billion ($231.9 billion), even though about 66% of the year has already passed.
The relatively low rate of budget execution reflects the fact that government spending typically accelerates toward the end of the year. Spending so far is up only 3.6% from the corresponding period last year, compared with a 7.4% increase planned for the 2026 budget. The gap suggests that the government is executing its budget more slowly than planned, although much of the unspent money could still be disbursed during the final months of the year.
On the revenue side, the positive trend has continued. State revenue totaled NIS 47.9 billion ($15.9 billion) in August, compared with NIS 43.9 billion in August 2025, an increase of about 9%.
For the first eight months of the year, state revenue reached NIS 410.1 billion ($136.2 billion), an increase of approximately 13.9% from the corresponding period last year. The figure represents about 69% of the annual revenue forecast, which has already been revised upward, even though only 66% of the year has elapsed.
When focusing specifically on tax revenue, excluding fees and other government revenue, and adjusting for legislative changes and exceptional receipts, tax revenue in August was only 4.6% higher than in August 2025. The increase was driven primarily by indirect taxes, which rose 10.3%, while direct tax revenue increased by just 0.4%.
That pattern contrasts with the trend for the year as a whole. Adjusted tax revenue is approximately 9.3% higher than in the corresponding period of 2025, with the increase driven primarily by direct taxes rather than indirect taxes.
The Tax Authority also reported an exceptional payment of NIS 900 million ($299 million) in income tax during August. It attributed the increase in indirect tax revenue this month primarily to higher vehicle imports and increased consumption compared with August 2025.
