The rate of growth in Israel’s state revenues continues to exceed all expectations. The Ministry of Finance chief economist Shmuel Abramson is currently revising the official revenue forecast upwards, not for the first time, for 2025-2026.
The revised forecast, which is supposed to be published only after it has been presented to ministers ahead of the cabinet meeting to approve the 2026 budget in about two weeks, was accidentally revealed in a Ministry of Finance publication – in a small footnote in the October revenues and expenditure report. The note said that at the end of October, the 2025 forecast was updated to NIS 550.2 billion. The note was in the Accountant General’s monthly report, which was published last week, and slipped under the radar. Even the chief economist’s department was unaware of its publication.
The Ministry of Finance’s latest forecast has an extra NIS 11.6 billion in the state coffers compared with the May forecast, which was already NIS 21.5 billion higher than in the original 2025 budget. In total, surplus revenues of NIS 33.1 billion are expected this year, even though the war lasted through most of 2025, well beyond the scenario on which previous forecasts were based. The final figure may be slightly updated based on November data. “Globes” has also learned that the revenue forecast for 2026 will increase significantly beyond the NIS 556.9 billion forecast in May.
Trapped profits and invoices
The good news for the state coffers points to a strange anomaly in the macroeconomic data of the Israeli economy. On the one hand, the rate of revenue growth continues to surprise favorably, while on the other hand, and seemingly in contradiction to the revenue growth, the Ministry of Finance continues to reduce the GDP growth forecast for 2025.
According to accepted economic theory, GDP growth and state revenues are directly linked trends. When activity in the economy increases, businesses and consumers pay more taxes to the state. So, how is it possible that in the same forecast for 2025, opposite trends of soaring revenues versus weakening growth are simultaneously present?
The answer to this lies in the fact that a number of relatively unusual events have occurred that have boosted revenues, without producing organic growth. For example, grants worth tens of billions of shekels to reservists and evacuated residents, some of which have returned as taxes to the state. In addition, the record revenues in January 2025, after the Trapped Profits Law and the expanded additional tax, which led to increased dividend release.
There has also been extra money swilling around the economy as a result of the Tel Aviv Stock Exchange (TASE) breaking records, and due to the Tax Authority’s “Israel Invoices” reform, which was successful far beyond expectations. The program, which was intended to limit the ability to use fictitious invoices and accumulate black capital, has so far yielded an additional NIS 15 billion above initial forecasts.
Prof. Benjamin Bental, a 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 is significant volatility. Economic growth moves taxpayers to higher tax brackets, which raises revenues above the rate of GDP growth. In addition, changes in the tax system itself, such as a tax on trapped profits, can cause exceptional revenues, as happened in the first quarter of this year, before returning in subsequent quarters to the average annual rate.”
The Ministry of Finance’s revenue forecast is still not an invalid analysis. The next state budget is built around it, and state spending is planned against it, within the limits of the deficit target. How will an increase in the revenue forecast for next year affect the construction of the 2026 budget? For example, does it permit abandoning tax hikes and adopting a budget with relief for the public?
Prof. Bental explains, “Optimistic growth forecasts may justify increasing spending or reducing taxes, but with a predicted growth rate of 5.2% compared with 4.7% at the Bank of Israel and 3.7% at the Aharon Institute, great caution is required in budget planning, as high uncertainty regarding the central variable that determines tax revenues requires responsibility in planning for 2026.”
The rebound after the war
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 the GDP growth forecast for 2025, to 2.8% from 3.1%. The update was made following a second quarter that weakened growth figures, which included the Iran war.
In August, the Ministry of Finance cut its 2025 GDP growth forecast from 3.6%. Overall, the final figure will be much lower than the original forecast of 4.3% growth at the start of 2025. As with the previous reductions, the forecast for next year was raised to 5.2% GDP – a figure that reflects expectations of a significant rebound after the war.
Published by Globes, Israel business news – en.globes.co.il – on November 20, 2025.
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