Yesterday evening, Prime Minister Benjamin Netanyahu and Minister of Finance Bezalel Smotrich presented their economic plan for dealing with the rising cost of living in Israel. The plan constrains a series of price freezes or reductions of price rises on electricity, water, fuel, and local taxes (arnona).
Smotrich declared yesterday evening that most of the measures "don’t require budgetary sources but rather more efficient running of the power and water utilities." In other words, while cutting taxes, such as the excise on fuel, require a source of funding within the state budget to offset the loss of revenue, with power and water, optimistic forecasts are enough to finance the price cuts.
Thus most of the relief on electricity bills was determined on the basis of the government’s renewed expectation that the difficulties in the complicated and slow process of selling the Eshkol power plant in Ashdod will be resolved shortly. This is contrary to recent assessments. Completion of the sale of the plant by Israel Electric Corporation to a buyer from the private sector will bring in a sum large enough to finance the reduction in the electricity tariff. The price of water largely derives from the price of electricity, and so it will fall accordingly.
The electricity tariff was due to rise by 8.2% at the start of 2023, mainly because the global price of coal has risen and because of delays in converting power plants to run on natural gas. The first step taken to deal with the matter was an extension to the exemption from the excise on coal. For that measure, the Ministry of Finance had to find a budgetary source, but it was enough to offset only 1% of the rise in the price to the consumer. Netanyahu declared that he would cut the price increase to just 2.5%. To finance that, the sale of the Eshkol plant will have to be a very great success.
"As far as those items for which a budgetary source is required are concerned, we will do some serious work in the Budgets Division at the Ministry of Finance. There are good, appropriate, professional sources for it," the minister of finance told the press. What is that appropriate, professional source? NIS 2.25 billion that the Ministry of Finance was supposed to inject into the compensation fund financed by property tax earmarked for dealing with damage from war, fire, flood and so on. The money will not go to the fund and will instead be used by the government to finance things like the lower excise duty on gasoline and coal, or the planned abolition of purchase taxes on disposable utensils and sweetened beverages.
What about the promise to deal with fuel prices?
The plan’s reference to the price of fuel is symbolic. The decision that was made will reduce excise on fuel by NIS 0.10 per liter of gasoline, until the end of the year. This does cancel the latest rise in the price of fuel that came into force this month, and leaves the price at fuel stations at NIS 6.94 per liter, but the price reduction amounts to slightly over 1%.
The new government’s action on the price of fuel is very minor in comparison with the previous government’s policy. Various reductions were made in taxation on fuel between April and December 2022, amounting to NIS 0.33-0.85 off the price of a liter of gasoline. Extending the reduction at a level of just NIS 0.10 at most enables the government to say that it has kept Netanyahu’s election promise to deal with soaring fuel prices.
Income tax changes were happening anyway
Netanyahu and Smotrich also announced income tax relief, but in fact this is an automatic revision of the income tax brackets and of the value of tax credit points. The revision takes place every year in accordance with the rise in the Consumer Price Index. Because of the high inflation rate in 2022, the tax brackets have widened significantly, meaning that more people will be in the lower brackets and will have more disposable income. As far as tax credit points are concerned, the value of each point rises by NIS 12 to NIS 235. This is not part of an economic plan, but built-in partial compensation for inflation.
Published by Globes, Israel business news - en.globes.co.il - on January 12, 2023.
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