2013 has not started well for the Israeli driver. The NIS 0.31 per liter hike in the price of gasoline at midnight of January 31 touches on people's exposed nerve. It infuriates us more than hikes in the water and electricity tariffs, or the rise in the price of housing, and not because the water and electricity bills are paid every once two months and we pay for gasoline every time will fill up at the pump. We are infuriated because the rise in gasoline prices makes us feel that the government treats us like a source to be pumped for cash.
Electricity and water tariffs are intended to finance the electricity and water systems. The gasoline excise, however, is swallowed by the state's coffers without leaving a sign. The gasoline excise is an excellent tax for the Ministry of Finance. It is the best cash cow in the Tax Authority's barn.
The growth in revenues from the gasoline excise has been spectacular: from NIS 12.7 billion in 2009 to NIS 15 billion in 2012. These billions are poured into the Ministry of Finance at no cost or effort by it, but by the generosity of the fuel companies which collect the excise at the pump. There are no tax assessors, no income tax reports, no VAT receipts, and no lawyers or accountants. The government takes a donation of NIS 4.10 per liter with every swipe of a consumer's credit card.
Taxes - VAT and the excise - account for 55% of the consumer price of gasoline. When the price of gasoline skyrockets, the Ministry of Finance says that it is not to blame; that it has no role in the rise in price. It says, "The tax is fixed. It's the price of oil in global markets which has gone up." The price of gasoline is based on the average quotes of CIF La Vera trade prices for fuels in the Mediterranean basin, which are then converted from dollars into shekels, accounting for 40% of the consumer price of gasoline.
But the Ministry of Finance neglects to mention that the so-called fixed excise is actually linked to the Consumer Price Index (CPI), in contrast to salaries. Worse, it neglects to mention that VAT is also levied on high oil prices. In other words, the government shares in the profits reaped by the oil suppliers at the consumers' expense. For $1 rise in the price of oil in international markets, the Israeli government reaps $0.17 - not a bad deal.
This is the most painful point. Introductory Economics at college teaches that rising prices for a product should reduce demand for it. But not for gasoline; it doesn’t happen. In 2012, with the price of gasoline at an all-time high, sales by volume rose by 2%, and tax revenues rose accordingly.
In terms of economics, demand for gasoline is inelastic, which means that, in theory at least, even if the price soars to over NIS 10 per liter, we will continue to consumer the same amount of gasoline. And what is more perfect for the government? One of the main reasons why demand for gasoline is inelastic is that Israeli governments have never developed - excuse me, made sure never to develop - a real alternative to the private car as the primary way to get to work. Public transportation is a bad option used by ever fewer Israelis. Switching to bicycles sounds great, but is impractical. The bus is an unreliable, time-wasting, nerve-wracking experience.
The train, when it arrives on time and there are no strikes, is good, but it is only relevant for commuters living within walking distance of a train station. In Europe, where the gasoline excise is as high as in Israel, there are mass transit systems in every city: networks of light rail and subway lines, and a holistic approach for shortening the time from door to door. In Paris, for example, the average distance to a metro station is 540 meters.
Israeli is only now beginning to work on the first railway line in metropolitan Tel Aviv, which will begin operating toward the end of the decade. The plan to build a network of light rail and subway lines in metropolitan Tel Aviv is still only on the drawing board. As a consequence, Israelis will continue for years to pay European-level excise while receiving a developing world public transportation system.
Published by Globes [online], Israel business news - www.globes-online.com - on February 3, 2013
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