Tech deals drive Israel’s deficit lower
One-off tax payments from major transactions push revenues higher, masking more modest underlying growth.
The Israeli government’s annual deficit stood at 4.2% at the end of March, or approximately NIS 89.5 billion ($29.8 billion), a decline of half a percentage point compared with the deficit recorded at the end of February.
The improvement reflects a relatively modest monthly deficit of NIS 1.6 billion ($0.5 billion) in March, compared with a deficit of NIS 13.1 billion ($4.4 billion) in March 2025, which has now dropped out of the annual calculation. The government deficit represents the gap between government spending and revenues.
At first glance, the data suggests a broad-based fiscal improvement. But a closer look indicates that the decline is largely being driven by a sharp, and potentially temporary, surge in tax revenues, most likely linked to large transactions in the technology sector.
State revenues in March totaled NIS 55.1 billion ($18.4 billion), an increase of NIS 10.5 billion ($3.5 billion), or about 24%, compared with March 2025. This jump in revenues is the primary reason for the decline in the deficit.
However, a significant portion of this increase stems from one-off tax payments totaling NIS 8.7 billion ($2.9 billion) from just two companies. While the Tax Authority has not confirmed the source, such large, concentrated payments are typically associated with major acquisition deals, suggesting that recent high-tech exits are likely playing a central role in boosting state revenues.
This dynamic highlights the growing dependence of government finances on sporadic, high-value transactions in the tech sector, rather than on broad-based, recurring economic activity.
Looking at the first quarter as a whole, the government posted a surplus of approximately NIS 12.9 billion ($4.3 billion). Total state revenues rose by 10.4% to NIS 162.5 billion ($54.2 billion), up from NIS 147 billion ($49 billion) in the same period last year.
Yet here, too, the headline figures are distorted by non-recurring factors. Changes in tax policy have also played a role: whereas in previous years real estate purchase taxes were largely directed to the Property Tax Compensation Fund, in 2026 only 25% is allocated there, with the remainder flowing directly into the state budget, artificially inflating reported revenues.
At the same time, countervailing pressures remain. The ongoing war has allowed for the postponement of certain tax payments, which would otherwise have reduced revenues in the short term.
On the spending side, March marked the first full month under an approved state budget, leading to relatively high expenditure. Government spending reached NIS 56.7 billion ($18.9 billion) during the month. Total spending in the first quarter amounted to approximately NIS 150 billion ($50 billion), an increase of 4% compared with the same period in 2025.
Notably, the Accountant General’s report did not include a breakdown separating war-related spending from other expenditures, nor did it reiterate that spending figures exclude outlays made through the Property Tax Compensation Fund, making it more difficult to assess the underlying fiscal position.
To better understand the real trend in tax collection, the Tax Authority publishes a metric known as the “real rate of change at uniform tax rates,” which adjusts for inflation, legislative changes, and one-off payments. According to this measure, tax revenues rose by 5.8% in March and by 7.3% over the first quarter.
These figures suggest that while underlying tax revenues are indeed growing, the sharp improvement in the deficit is largely driven by exceptional events, most notably large-scale tech transactions, rather than a fundamental shift in the fiscal trajectory.
