The government will not intervene in the gasoline price hike. Despite public criticism and protests in the Knesset, Prime Minister Benjamin Netanyahu is not expected to intervene on the issue.
Yesterday, the Prime Minister's Office examined a number of alternative to reduce the sharp price hike, but this morning, it stated that none of the alternatives were realistic, and that their estimated cost amounted to hundreds of millions of shekels a year. Netanyahu's aides said that any intervention in the price would ultimately either increase the deficit or force a tax hike somewhere else.
Notwithstanding the pessimism, the Prime Minister's Bureau said that it would review other alternatives, but that an intervention by the government was unlikely. The Bureau pointed to the need for tighter sanctions against Iran in view of the current wave of price increases.
Price of gasoline hits all-time high
The Ministry of Energy and Water Resources today set the price of self-service 95 octane gasoline for March at an all-time high of NIS 7.84 per liter, NIS 0.38 per liter more than the current price. The price of full-service gasoline crossed the NIS 8 threshold to NIS 8.05 per liter. The main reason for the price hike is the rise in the price of oil in international markets, with the strengthening of the shekel against the dollar in the past few days as a contributing factor - it added NIS 0.06 per liter to the price hike.
Among the alternatives that Prime Minister's Office director general Harel Locker and Budget Director Gal Hershkowitz examined to ease the gasoline price hike was a NIS 0.20 per liter reduction in the excise. The idea was dropped in the face of strong objections by the Ministry of Finance. Netanyahu decided in favor of the Ministry of Finance that these taxes should not be cut in view of the higher-than-expected budget deficit.
It should be noted that, last summer, the government cut the gasoline excise in the face of the public protest. At the time, Netanyahu obtained the Ministry of Finance's consent to a NIS 0.20 per liter reduction in the excise, thereby avoiding a gasoline price hike. The government subsequently reduced the fuel companies' marketing margin by NIS 0.15 per liter to NIS 0.59 per liter. However, the latest jump in the price of oil, due to lower Iranian oil exports to Europe and the rising risk of a regional war, trumped those measures.
The price of gasoline has risen by NIS 0.73 since the beginning of the year - more than 10%. The increase will boost prices for goods and services across the economy, and is infuriating the public. Nonetheless, Hershkowitz told Harel yesterday that the Ministry of Finance would refuse to cut the taxes on gasoline.
"This is mere populism. Our job is to prevent this. We'll insist on it," a top Ministry of Finance official said. The ministry's opposition to a tax cut is for fiscal and credibility reasons. The ministry says that each NIS 0.01 cut in the excise costs NIS 40 million in lost tax revenues (which totaled NIS 16.5 billion in 2011), and would worsen the budget deficit in 2012, which is expected to greatly exceed the original target (to 3.5% of GDP from 2%). The ministry added that cutting taxes because of temporary price hikes would damage the credibility of the government's fiscal policy.
Meanwhile, MKs called on the Ministry of Finance to forego the unexpected profits generated by the higher gasoline prices. The tax on gasoline comprises excise, which amounts to 38% of the price, and VAT, which accounts for 14% of the final price. The excise is fixed and linked to the CPI, but the proportion of VAT rises proportionately to the rise in price.
An examination by "Globes" found that the increase in the price of gasoline since the beginning of the year will boost revenues from gasoline taxes by annualized NIS 358 million.
Opposition MKs tried today to embarrass the government with a series of bills aimed at lowering the price of gasoline. The first bill, tabled by MK Meir Sheetrit (Kadima) called for abolishing the VAT on the excise, which would cut the price of gasoline by NIS 0.50 per liter. A second bill by MK Yoel Hasson (Kadima) stated that the finance minister could not levy taxes exceeding 30% of the price of gasoline without prior approval by the Knesset Finance Committee.
Both coalition and opposition MKs called on Netanyahu to personally intervene to ease the price hike. MK Miri Regev (Likud) said, "A price of NIS 8 per liter is a burden on the public. Rising fuel prices raises prices across the economy. I call on the finance minister to climb down from Olympus to the people."
MK Ophir Akunis (Likud) said, "It isn't just the price of gasoline that is breaking records, but also the social insensitivity of Ministry of Finance officials. Their chutzpah has crossed a line. They should use public transport instead of offering advice."
MK Eitan Cabel (Labor) said, "The price hikes is giving the finger to the hundreds of thousands of people who came out on to the streets last summer to protest the cost of living, and to the millions of people who are trying to survive in the economic jungle created here.
Published by Globes [online], Israel business news - www.globes-online.com - on February 29, 2012
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