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Israel
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
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