Israel’s July fiscal data: deficit narrows, but risks rise from Gaza takeover plan

ISRAEL - In Brief 11 Aug 2025 by Sani Ziv

---

The Ministry of Finance reported a fiscal deficit of NIS 4.7 billion ($1.4 billion) in July, with the trailing 12-month deficit narrowing to 4.8% of GDP from 5% in June. The budget deficit peaked at 8.5% of GDP in September 2024. Tax revenues in July totaled NIS 46.4 billion and reached NIS 306 billion since the beginning of the year, a 16.6% nominal increase compared to the same period in 2024. In constant tax rates, tax revenues have increased by 5.6% in real terms since the beginning of the year (compared with January-July 2024), a relatively high rate. The sharp rise in tax revenues in July was partly due to the deferral of tax payments during the war with Iran in June. Since the beginning of the year, government expenditures have increased by 3.1% compared to the same period in 2024. This moderate growth reflects a 4.6% rise in civilian spending alongside a 3.8% decline in defense expenditure. In July alone, government spending totaled NIS 52.9 billion, with defense expenditures reaching NIS 15 billion. Implications of July’s fiscal data Although the deficit so far appears relatively favorable compared with expectations (mainly due to increased revenues), the main risk stems from the decision to expand the war in Gaza and seize control of Gaza City. The current state budget is already expected to be breached in the coming weeks to allocate an additional NIS 42 billion for defense following the war with Iran and “Operation Gideon’s Chariots”, while an additional NIS 40-50 billion to finance the new Gaza war could push the deficit to 6%-7% this year. The government’s flexibility to implement fiscal adjustments, such as those undertaken in 2025, is constrained by the...