Country Listing

Israel Table of Contents


Government Budget

By 1988 the government had been operating under a deficit for more than a decade. Between 1982 and 1984, the deficit equaled between 12 and 15 percent of GNP. After the implementation of the July 1985 Economic Stabilization Program, the government succeeded in balancing its budget (see The Economic Stabilization Program of July 1985 , this ch.). This balance was achieved not only because the government raised taxes and reduced spending, but also because the reduced inflation increased the real value of tax revenues. During FY 1986, the expansion of the economy compensated for the reduction in direct and indirect taxes. The government also initiated plans to reduce further its public debt (see table 5; table 6, Appendix A).

Before the July 1985 reforms, the tax system was considered to be very progressive on individual income but barely touched corporate income. After the reforms, which included a new corporate tax law, large sums of taxes were collected from business sectors that previously had been untaxed. Personal income tax ranged from a base rate of 20 percent (payable on incomes equivalent to about US$500 per month) to a top rate of 60 percent on a monthly income of about US$2,100. Corporate income tax generally was 45 percent. Few corporations, however, actually paid this rate once various government subsidies were included in the calculation.

Data as of December 1988