Last week, Minister of Transport Yisrael Katz came out with a resounding declaration: "Vehicle taxation is responsible for half the growth in the economy." Since the Ministry of Transport is not responsible for gathering economic growth statistics in Israel, we presume that this declaration was based on internal data circulating within the government system. At any rate, this is an official seal on what we have been arguing for a long time: the state is currently sacrificing long-term transport and environmental interests in favor of short-term tax collection, and has neither the motivation nor the ability, given the available taxation tools, to restrain the uncontrolled growth of the new car market.
600,000 vehicles in 26 months
It might be argued that the Minister of Transport's statement was a little exaggerated and was perhaps intended to needle Minister of Finance Moshe Kahlon, Katz's longstanding political nemesis and the knight championing the war on the cost of living. But the data indicate otherwise. In November, which was supposed to be a weak month for sales, another 21,000 new cars went onto Israel's roads, bringing the cumulative annual figure to 280,000 cars. Even if December is a "leftover" month as usual, this year will still end with about 290,000 deliveries. These are only the surface figures. By the end of December, the vehicle importers will organize early release from customs of another 40,000-60,000 new cars with the aim of beating the periodic revision of the "green taxation", which amounts to an increase in real terms in purchase tax. The early release will pour NIS 1-1.5 billion surplus tax revenue into the state's coffers before the end of the year, raising annual tax collection from the vehicle market to the region of NIS 40 billion. Along the way, it will also close a gap in the upbeat "growth" figures for 2016 which the Ministry of Finance will proudly present to the rest of the world.
So where will room be found for all these vehicles on Israel's under-provided and crowded road network? And how will they affect the air pollution figures? And the second-hand car market? The state's answer to all of these questions is: "Who cares?"
"That can't be," you will surely say, "There must be some responsible regulator somewhere with a civic conscience who is right now thinking up an emergency plan of action that will put a brake on the vehicle market's growth rate." We're sorry once again to have to hurt the naivety of the optimistic and the optimism of the naive. The revenue forecast chapter of the new state budget predicts that, in 2018 alone, state revenues from fuel taxation will be NIS 19.6 billion (compared with NIS 17.5 billion this year). This figure testifies more than anything else to the government's real expectations for the coming two years: many more vehicles on the roads, many more kilometers traveled, and of course much more state revenue. After all, vehicles burn fuel in traffic jams too (with 65% tax).
Cost of living: passing responsibility
It is possible to take comfort in the fact that taxation on fuel is at least progressive taxation, deriving directly from the amount of vehicle use (ignoring for the moment the fact that the taxation system encourages the 250,000 drivers with cars provided by their employers to use them excessively, at someone else's expense). Even when it comes to fixed vehicle taxation, however, the state's greed knows no bounds. This is perhaps the point at which to make an embarrassing confession: I too was afflicted with optimism. I recently revealed the huge extent of the revenue from license fees, over NIS 4 billion annually. This is not a fee, but just another regressive tax imposed equally on those who drive 5,000 kilometers a month and those who drive 50,000 and contribute ten times as much to congestion and pollution.
Since the "fee" represents a not insignificant contributor to the cost of living of Israel's 2.5 million vehicle owners, we thought that grass-roots pressure would lead to some movement above, and we asked for a response. In fact, we encountered buck passing from one side to another with a degree of skill that would not shame Atletico Madrid's forwards.
So here are the responses. The Ministry of Transport failed to comment on the facts presented to it showing that fees in Israel are several times higher than the global average. The ministry did find it important to stress that it only performs the technical task of collection. "Since the state revenues from license fees are transferred directly to the state revenues administration and represent a budgetary source… the minister of transport has no authority to order changes in the level of the fees, as that is the sole responsibility of the Ministry of Finance."
In other words, Katz "the bulldozer", who is changing the map of the country and who publicly challenges even the prime minister on matters dear to his heart, has no say on vehicle license fees. Well what do you want, ask Kahlon, he's responsible. There, they passed the ball to the other side of the field, together with a hint. "The vehicle license fees you mention represent a small proportion of government spending occasioned by private vehicles. This includes expenditure on paving roads, widening and maintaining them, safety projects, public transport routes, and other infrastructure. Therefore, reducing revenues from vehicle license fees would mean harming the infrastructure that serves the public or alternatively a rise in taxation because of the need to finance these investments from another source." Translated from politicalese: "If we cut the fee, from where will we finance the insatiable appetite of the Ministry of Transport for budgets?" In short, pay up and be thankful that we make do with that.
Opaque figures
One of the secrets of the success of vehicle taxation in Israel is the lack of transparency. Most of the analysts and the international rating agencies are exposed to only the tip of the iceberg when it comes to vehicle taxation and not to the parts well-hidden below the water in vague items such as "State Revenues from Fees" or "Receipts from Tax on Usage Value" (about NIS 5 billion annually, included in the Income Tax item). Even the overt part, of purchase tax on vehicles, is well camouflaged with the aid of a complicated mechanism of "green taxation", which makes it very hard for external observers to understand what the real rate of tax is on different vehicles. This is perhaps the reason that in the OECD's most recent annual taxation report, released last week, Israel is placed low in comparison with the developed countries in the comparison of "Revenue from vehicle taxation relative to GDP". I wonder what the OECD analysts, who gave Israel an optimistic growth forecast, would say to the statement by a senior economic minister that half the country's annual growth is based on vehicle taxation.
Published by Globes [online], Israel business news - www.globes-online.com - on December 5, 2016
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