The growth rate of state revenues in Israel continues to exceed all expectations. Finance Ministry chief economist Shmuel Abramson is currently revising official revenue forecasts upward, and not for the first time, for the period 2025-2026.
The revised forecast, which is only supposed to be published after being presented to ministers before Cabinet meets to approve the 2026 budget in about two weeks, was coincidentally revealed in a Finance Ministry publication – in a small footnote in the October revenue and expenditure report. The memo stated that at the end of October, the 2025 forecast was updated to NIS 550.2 billion. The memo was contained in the Accountant General’s monthly report, published last week, and disappeared from view. Even the chief economist’s department was not aware of its publication.
The Finance Ministry’s latest projections show there is an additional NIS 11.6 billion in state coffers compared to May’s forecast, which was already NIS 21.5 billion higher than in the original 2025 budget. In total, the revenue surplus is expected to reach NIS 33.1 billion this year, even though the war has continued for most of 2025, far exceeding the scenario on which previous projections were based. The final figure may be updated slightly based on November data. Globes also learned that revenue projections for 2026 will be significantly higher than May’s forecast of NIS 556.9 billion.
Trapping profits and bills
The good news for state coffers points to a strange anomaly in the macroeconomic data for the Israeli economy. On the one hand, the revenue growth rate continues to surprise positively, while on the other hand, and apparently in contradiction to revenue growth, the Ministry of Finance continues to downgrade its 2025 GDP growth forecast.
According to accepted economic theory, the growth of a country’s GDP and revenues are directly related to trends. When economic activity increases, businesses and consumers pay more taxes to the state. So how can the same forecast for 2025 show opposite trends of rising revenues versus weak growth simultaneously?
The answer to this lies in the fact that a number of relatively unusual events occurred that increased revenues, without producing organic growth. For example, he granted tens of billions of shekels in grants to reservists and evacuated residents, some of which was returned as state taxes. In addition to record revenues in January 2025, after the Empty Dividend Act and the expansion of the surtax, which increased the dividend payout.
There was also an influx of additional money throughout the economy as a result of the record-breaking Tel Aviv Stock Exchange and the “Israel Invoices” reform implemented by the Tax Authority, which far exceeded expectations. The programme, which was aimed at reducing the ability to use fake invoices and accumulate black capital, has so far generated an additional NIS 15 billion above initial expectations.
Professor Benjamin Bentall, senior advisor at the Aharon Institute for Economic Policy at Reichman University, explains the volatility in revenues: “The tax is directly linked to GDP, but there are significant fluctuations. Economic growth moves taxpayers into higher tax brackets, raising revenues above the rate of GDP growth. In addition, changes in the tax system itself, such as the tax on locked-in profits, can lead to exceptional revenues, as happened in the first quarter of this year, before returning in subsequent quarters to the average rate annual.”
Ministry of Finance revenue forecasts are still invalid. The next state budget is built around it, and government spending on it is planned, within the limits of the targeted deficit. How will the increase in revenue projections for next year affect the construction of the 2026 budget? For example, is it allowed to abandon tax increases and adopt a budget with exemptions for the people?
“Optimistic growth forecasts may justify increased spending or lower taxes, but with a projected growth rate of 5.2% compared to 4.7% at the Bank of Israel and 3.7% at the Aharon Institute, extreme caution is required in budget planning, as significant uncertainty about the central variable determining tax revenues requires responsibility in planning for 2026,” Professor Bental explains.
Post-war recovery
Two weeks ago, at the Ministry of Finance’s press conference to present the principles of the 2026 budget proposal, Abramson announced a reduction in GDP growth expectations for 2025, to 2.8% from 3.1%. The update was made after a weak second quarter in growth numbers, which included the Iran war.
In August, the Ministry of Finance lowered its 2025 GDP growth forecast from 3.6%. Overall, the final figure will be well below the original forecast of 4.3% growth at the start of 2025. As with previous cuts, the forecast for next year has been raised to 5.2% of GDP – a figure that reflects expectations of a significant post-war recovery.
Published by Globes, Israel Business News – en.globes.co.il – on November 20, 2025.
© Copyright Globes Publisher Itonut (1983) Ltd., 2025.
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