Israel’s budget deficit narrows as tax revenues surge 11.5% amid economic recovery

Israel’s Finance Ministry reported positive economic news on Tuesday, releasing figures showing that the government’s budget deficit narrowed in August because of higher-than-expected tax revenues and an uptick in economic activity as the pace of the war has slowed and sectors including agriculture and tourism have begun to recover.

According to the figures released by Accountant General Michal Abadi-Boiangiu, the government recorded a deficit of approximately NIS 7.9 billion ($US 2.6 billion) in August 2026, down from NIS 9.6 billion ($US 3.17 billion) in August 2025.

The cumulative deficit currently stands at approximately 3.2% of gross domestic product, down 0.1 of a percentage point over the past year and well below the 4.9% ceiling set by the Knesset in the most recent budget plan.

In nominal terms, the deficit has reached approximately NIS 19.2 billion ($6.3 billion) since the beginning of 2026. The rolling 12-month deficit stands at approximately NIS 71 billion ($23.4 billion).

Tax revenues totaled approximately NIS 47.9 billion ($15.8 billion) in August, bringing total tax revenues for 2026 through the end of the month to approximately NIS 410.1 billion ($135.3 billion). This is an almost 11.5% increase from the NIS 367.7 billion ($121.3 billion) in tax revenues the government collected during the corresponding period in 2025.

At the same time, government spending reached approximately NIS 429.3 billion ($141.7 billion) through the end of August 2026, compared with approximately NIS 414.5 billion ($136.8 billion) during the same period last year.

The figures point to a relatively strong fiscal picture in the short term, with rising tax revenues helping to contain the deficit despite increased government spending. However, the improvement may prove temporary as Israel prepares for significantly higher defense and security expenditures. Estimates indicate that the deficit could rise to approximately NIS 100 billion ($33 billion) by the end of the year as military spending increases.

A recent Finance Ministry report forecasts continued robust economic growth, which could generate additional tax revenues. Several of Israel’s major manufacturing companies, particularly in the defense sector, have also reported record sales and profits.

However, Israeli NGOs have warned that economic gains in certain sectors have not necessarily trickled down to improve economic conditions for the broader population. The growing number of Israeli doctors leaving the country is one indication of the broader economic and social concerns facing the country.