We're overpaying for more than just cottage cheese

Communications, television, fuel, rent - Israelis are paying more than in Western countries, and on lower pay.

"Globes" continues to research the cost of living in Israel: the Israeli consumer pays almost two to three times as much as others around the world in monthly expenditures. And what about salaries? They are considerably lower compared with the rest of the world.

The cost of living in Israel has appeared in the headlines, but it is not just a matter of grocery store costs: in many sectors, from telecommunications to automobiles, we pay much higher prices compared with other countries.

The situation is not black and white: many countries pay more than we do for fuel, for higher education, as well as other items. From research studies, electric rates in Israel emerge time and again as the lowest in the world.

However, if you take into account the average salary of an Israeli compared with those who live across the ocean, the picture is bleak: the average salary in America is about NIS 13,000 a month, and in the large cities about NIS 17,000 a month (according to the federal government website,) data from the European Union show that the average salary in Britain is about NIS 15,000, in France about NIS 16,000, and in Germany about NIS 12,000. Here, the average salary is only NIS 9,000 (and this does not take into consideration the large gap between the rich and poor).

The difficulty in making ends meet is felt heavily in all aspects of the family budget: "I can easily fully clothe my children for $100 a child," said an Israeli living in the US, "whereas in Israel it would cost me much more. In the US, there is a huge market for good quality children's and adult clothing at reasonable prices -- prices that you will find in Israel only at the bazaars, where the quality is extremely low."

Target, Walmart, and The Children's Place are examples of these types of stores; even chains that "made aliyah" like American Gap or Swedish H&M, sell at prices that are 15-30% more than across the sea.

Here are some more aspects of the family budget that it is worthwhile to know how much we are paying for compared with other countries -- a painful reminder of reality that starts with cottage cheese.

Fuel: an essential commodity when there is a lack of decent public transportation -- costs twice as much as in the US.

The protest against high fuel prices is appropriate and just -- but unlike cottage cheese, which can easily be dropped from the shopping basket, many of us must fill our cars with fuel routinely and often.

The price is burdensome: there is about a 30% gap between what Israelis and Europeans pay for gasoline.

For this we can blame, among other things, the heavy excise, which was meant to increase prices as an incentive to use public transportation. Now there are calls to neutralize and soften that component for the benefit of consumers. In fact, about half of what we pay when we fill up with gasoline goes straight to the state in the form of VAT and excise, the fixed tax on gasoline.

The price of gasoline in Israel, as recently reported in "Globes," is one of the highest in the world; Israel is currently number twelve in Europe. Countries that pay more than Israel, like Belgium, Denmark, Finland, France, Italy, and Holland, offer advanced public transportation networks that widely are used (as opposed to the situation in Israel where the number of private cars on the road is relatively large). Of course, prices are lower in Arab countries and in Venezuela, where the government subsidizes gasoline prices.

The difference is even more painful when the comparison is made with prices in the US: Americans currently pay about NIS 3.5 per liter, less than half of the heavy price that Israelis pay.

College tuition: the strikes did not help

The cost of higher education in Israel is an extremely controversial issue, and many students' strikes have been held (and will probably continue to be held) because of it. About 250,000 students in Israel pay between NIS 9,500 yearly at subsidized institutions and NIS 30,000 yearly at private, non-subsidized institutions. The comparison between educational institutions world-wide is complex as a result of different pricing models: from no cost (mostly Europe) to an absence of regulation and extremely high prices (in the US.)

In other countries (among them Israel) a nominal fee is charged. "Nominal" does not refer to the amount charged: it means that the government sets a fixed and uniform tuition rate for all the universities according to the government's budget.

One way or another, we can certainly say that tuition for higher education in Israel is among the highest in the world, as corroborated by the OECD, which placed Israel number eight among 26 countries for tuition rates. The OECD figures show that the Israeli student pays at least twice as much as students in most of Europe.

Mobile phones: attractive packages are reserved for a few sectors

It is hard to overstate the exploitation of the Israeli consumer in telecommunications. The wireless companies have endless methods to confuse us, and to stick their hands deep down into our pockets and charge prices that could use some more competition.

Mobile telephony prices in Israel are among the highest in the world. The average price of user packages is the third highest in the world, the price per minute is in the top ten, and the monthly cost for usage is number one (according to Ministry of Communications' data and also data from Merrill Lynch, OECD research, Shaldor Strategic Consulting, and others).

From a short "Globes" search of foreign cellular companies on the internet, it appears that while we are paying hundreds of shekels for packages that include limitations on the number of minutes, messages and web surfing, users in the UK and the US receive unlimited minutes, messages and web surfing for NIS 100-170.

For example, Boostmobile offers plans for unlimited calls within the US for land and cellular phones, messages and web surfing for $54 (NIS 154.) For an additional $10, users can also receive unlimited access to international cellular numbers.

StraightTalk offers an "all inclusive" plan for unlimited calls and messages for $35-50 (depending on length of commitment, maximum two years) which is only NIS 120-172.

For $30 (NIS 103) users receive 1,000 minutes, 1,000 messages and 30MB web surfing, and an unlimited plan for $45 (NIS 155) at Bootsmobile. British Vodafone offers 900 minutes, unlimited messages and web surfing for £31 (NIS 173.)

And what is available here? The most "popular" packages currently being offered on the cellular companies' websites do not even come close to any of these rates. In exchange for the same NIS 175 for which foreign companies give unlimited usage, a student can receive from Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL) (at a special student discount rate not available to the general public) 400 minutes and messages together (user can choose how to divide them.) The hottest plan currently being offered to students by Pelephone Communications Ltd. for a similar amount (NIS 180) includes 400 minutes, 400 messages and 2GB web surfing (current subscribers pay more) and for NIS 169 Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) offers 250 minutes, 250 messages (1,000 messages for students) and 20MB web surfing.

One can only hope that the virtual providers, who will begin offering service this summer, as well as other companies, will improve the situation tremendously.

Cable and satellite: basic packages twice as expensive

A report that Public Trust submitted to the Ministry of Communications a few months ago, claims that basic cable packages are considerably more expensive than those available overseas, where the gap in prices reaches 177%.

For example, in the US, basic package prices are supervised and stand at about $11-14, one-fifth of the average price in Israel in purchasing power comparisons. The gap between average basic package prices in countries that were sampled, and the price in Israel, was found to be about $40.

The packages in Israel without commitment were considerably more expensive than average prices worldwide. The Israeli consumer pays three times as much for his freedom -- more than 200% above the average world price. Prices for packages with commitment were 156% more expensive than the average world price, in purchasing power comparisons.

Cable prices, by the way, have been consistently rising over the last few years.

Automotive: the government benefits from consumer use

A combination of factors make the cost of owning a car in Israel nothing less than scandalous, namely, the heavy taxation on the importation of cars, along with failures and the lack of competition in the import market. It is painful to discover each time anew how much a similar car would cost across the sea: even in Britain, one of the most expensive countries in the EU, a Mazda 3 costs about NIS 80,000, in contrast to about NIS 115,000 in Israel. The list price for a 2000 Subaru B4 is currently about NIS 30,000, whereas the Kelly Blue Book used in the US lists the same car at $5,000 (NIS 17,000), about half the price. A new Honda Civic is also about NIS 115,000 in Israel and in the US costs NIS 55,000 ($16,000 -- less than half).

In the US, private leasing is very popular, whereas in Israel the pricing method used by leasing companies differentiates between private and company clients, making it less desirable for owners of private cars.

Apartment rentals: Paris is like Tel Aviv

Real estate prices are sky high, but it's not only in Israel that we'll pay exorbitant rates for renting an apartment: even if prices change significantly among cities and it is hard to compare, we can safely say that prices are higher in the US.

"An apartment that costs NIS 6,000 a month in Tel Aviv would cost $4,000 in New York or Los Angeles, but a similar amount in middle America," said a US businesswoman knowledgeable about the Israeli market. A three-room apartment in San Francisco would cost over $2,000 (about NIS 7,000) a month.

In Europe the situation is just as difficult. You would pay €700-900 (NIS 3,900-5,000) for a 30 square meter apartment in Paris. 50 square meters: €800-1,000 (NIS 4,500-5,800) and 80 square meters: €1,000-1,400 (NIS 5,800-7,800).

And what about in Berlin? There it is cheaper. Rent for a 45 square meter apartment in the center of the city, in the most expensive area and including heating: €500-600 (NIS 2,800-3,400). An apartment in a less popular area, a ten-minute drive away, but with similar characteristics: €350-500 (NIS 2,000-2,800).

Rent for a three-room apartment in Tel Aviv would reach NIS 6,000.

A new cost of living index

In the light of the debate about food prices, Public Trust has launched an index to examine the prices of ten different products compared with similar products worldwide every week. The information is based on data provided by ACNielsen for Israel and Germany and data from consumer product sites in the US and Britain. The prices and the amounts that were found around the world have been adjusted for the amount of the products in each country and for the purchasing power of each country.

The first report that the organization published today claims that there are consistent and dramatic gaps in the prices of products in Israel whose prices are supposed to be set by free market competition. This is in a variety of categories, not just dairy products, as was reported by "Globes" over the last few days. These gaps can also be seen in imported products, and this is at a time when the shekel is getting stronger and therefore the cost of importing is lower. Absurdly enough, there are gaps in prices of Israeli products sold in the US at prices that are considerably lower than prices offered locally, and this is despite the extra costs of transportation and the small size of the market.

"Globes" has discovered that prices of products manufactured in Israel, and sold in supermarkets in New York, are lower by tens of percentage points than the prices in Israel. The products in question are from companies such as Wissotzky, Osem, Materna, Elite, Yad Mordechai, Yachin, and Kvutzat Yavne.

Prices of a variety of food products on the website of the Holon Shop supermarket in Brooklyn, New York, were compared with prices of supermarket chains in Israel. This specific American supermarket was chosen because of the large variety of kosher products sold there, as opposed to other chains.

For example, a box of 20 Wissotzky green tea bags, is being sold in the US for only NIS 10.20. In Israel, the cost of a box of 25 bags is NIS 24 -- more than double. Wide price gaps were found among Wissotzky flavored teas as well (Magical Garden series.)

Serious gaps in prices were also found in Osem soup-in-a-cup products, soup almonds, as well as in its subsidiary, Materna's, baby cereals. The cost of Materna's cream of wheat in the US is NIS 10.20, whereas in Israel it costs NIS 25. The cost for Elite's Must gum in Israel is 85% higher than the price to the consumer in a variety of supermarket chains in the US.

Moreover, "Globes" has found that in some instances, the price that the consumer pays in the US is less than the price the retailer in Israel pays. From data on one of the chains, "Globes" has learned that the wholesale price (the price the supermarket chain pays the manufacturer) of Wissotzky green tea is NIS 20.80. This is 62% higher than the consumer price in the US. Materna cream of wheat costs the chain NIS 13.80, which is 35% higher than the US consumer price.

Published by Globes [online], Israel business news - www.globes-online.com - on June 21, 2011

© Copyright of Globes Publisher Itonut (1983) Ltd. 2011

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