Gasoline prices have reached record highs. The maximum price for self-service
95-octane gasoline went up over the weekend by 55 agorot, to NIS 8.25 per liter
The sharp rise in gasoline prices is due primarily to
skyrocketing crude oil costs, in particular the Brent crude traded in Europe and
used in Israel.
Unlike the US, which has more developed oil refining
abilities and its own oil and natural gas reserves, the Europeans (and Israel)
are more dependent on oil coming out of the Persian Gulf, which has been become
inordinately expensive due to the tension with Iran. Brent prices have
risen from $78.2 per barrel in October 2007 to $115.7 per barrel at the end of
The cost of oil makes up NIS 3.42 of the price for a liter of
gasoline in Israel. But this accounts for less than half the total
Taxes make up a majority of the cost to the consumer. An
excise tax accounts for NIS 2.99 of the price and value-added tax, which was
increased on September 1 from 16 percent to 17%, makes of the rest. (VAT is
charged not only on the basic cost of the fuel but also on the excise tax,
resulting in double taxation.) Changes in the shekel/dollar exchange rate also
have had an impact on gas prices.
While gasoline prices in the US are
about half what they are here, prices in Israel are about the same as in Europe
in absolute terms. The average price for a liter of gas in Europe is about 1.8
euros compared to about 1.5 euros in Israel. However, according to a comparative
study made by an analyst from Migdal Capital Markets, if one factors in Israel’s
relatively low average monthly wage, the relative price for gas in Israel is
significantly higher. Gasoline expenses make up about 14.5% of the average
Israeli’s salary compared to just 10% of the average
High-ranking officials in the Finance Ministry have used at
least three arguments to justify the high gas tax.
First, fuel combustion
generates air pollution that harms human health.
Therefore, the state has
the right to “punish” drivers. However, quantifying the damage caused by
pollution is no easy matter. How much would people be willing to pay to reduce
the risk of adverse health effects cause by carbon emissions? Also, a high
gasoline tax carries with it economic costs.
Transportation costs climb,
resulting in higher prices for a wide range of goods and products. And there are
more effective ways of reducing pollution, for instance by phasing out the use
of coal and diesel fuel to generate electricity.
Second, a higher gas
price reduces congestion on the roads. But reducing traffic effectively requires
a concerted policy that encourages drivers to avoid rush hour
Higher gas prices will not encourage drivers to arrive earlier or
later at work or to use alternative routes. They will hurt drivers who commute
from outlying areas where there is no proper public
Still, the Treasury’s third claim – that high gas taxes
are an effective and easy way of increasing state revenue – is undoubtedly true.
About 3.7 billion liters of gasoline are sold in Israel every year. Every
agora that is cut from the tax per liter translates into a NIS 37 million
decrease in revenue.
Even before the one-percentage point hike, VAT
revenues from fuel sales were expected to reach NIS 1.63 billion in 2012. And
excise taxes were expected to bring in NIS 9.7b.
Together, these taxes
account for nearly 5% of the approximately NIS 220b. in annual tax revenues
collected by the state. Caving in to populist pressures and cutting taxes on gas
might make Prime Minister Binyamin Netanyahu and Finance Minister Yuval Steinitz
more popular. But from a fiscal perspective, such a move would be
Unless opposition politicians such as Labor Party
chairwoman Shelly Yacimovich and Kadima Party chairman Shaul Mofaz are prepared
to either make further cuts to an already downsized state budget or to raise
income taxes, they should not be so quick to criticize the government for
keeping fuel taxes unchanged.