The government's deficit crisis is worsening as the state's income from tax revenues continues to crumble.

Tax revenues eroded by another 7% in May compared with April to NIS 12.8 billion.

From January to May 2002, the treasury brought in NIS 61.9 billion in taxes, a real drop of 6% compared with the parallel period of 2001.

The drop in revenues combined with the hike in defense spending led the government in April to adopt a series of cost-cutting measures, including higher taxes.

Excise tax on fuel was boosted immediately, as was purchase tax on cigarettes, which beefed up income to the tune of NIS 100 million in April. Without those amendments, tax collection would have slumped by 8% instead of 7%.

Value-added tax will shortly be increased from 17% to 18%, and the ceiling on national insurance payments will be abolished. Both measures are expected to improve the tax situation somewhat.

Customs and VAT collection inched up by 2% in real terms in May to NIS 5.2 billion. That includes, as said, extra income from fuel and cigarette taxes.