Treasury plans bringing Uber to Israel

Tel Aviv traffic jam  photo: Eyal Izhar

The Ministry of Finance wants to relieve Israel's jammed roads with a congestion charge, tax on parking spaces at work, and Uber shared ride taxi services.

In addition to Tel Aviv congestion charge, the Ministry of Finance is planning other measures, including a tax on the usage value of parking granted to employees by their employers, non-recognition of employees' congestion charges as an expense for their employers' tax purposes, and completely opening of the market for shared transport services, including Uber shared ride taxi services.

As reported in "Globes," the congestion charge alone is expected to raise NIS 1.5 billion a year for the state treasury from drivers. This money will be divided between improving public transport and reducing the annual licensing fee on cars. The Ministry of Finance is proposing earmarking 66.6% of this amount, NIS 1.1 billion, for reduction of the car licensing fee, and 33.3%, NIS 400 million,  for boosting public transport at peak hours, mainly buses, in addition to the regular budget allocation.

These measures are critical steps designed to at least prevent or delay the transport cataclysm that is rapidly approaching. This plan is also essential in view of the reluctance of Israel drivers to use public transport, as shown by the pace of car sales and new vehicles going on the road. 

The Ministry of Finance's plan, however, is still far from fruition, in part because there is still no government or functioning Knesset able to push the reform through. All of the responsible parties at the Ministry of Finance who devised the plan have so far kept silent about it. They are aware that some of the recommendations in the plan will hit the pockets and economic interests of several of the strongest lobbies in Israel. These powerful lobbies have already more than once thwarted transport reform essential for the public. 

The key question concerns the chances of passing a plan for reducing the use of cars in Israel, given the private interests involved that are liable to be damaged. Every plan must take into account the size of the obstacles.

People with company cars will make trouble

According to the Ministry of Finance's figures, 350,000 people in Israel have company cars, a little less than 10% of all the registered private vehicles. In this case, however, the question is not how many, but who. Figures from the Bank of Israel and the Ministry of Finance show that people with company cars, or "leasing drivers," are at the top of the economy - 50% of the top 10% received this benefit as of 2017, including most of the employees and managers in the centers of power and decision-making in Israel: IDF officers, senior officeholders in the public sector, MKs, tech company employees, and private sector executives.

The Ministry of Finance's plan to weaken opposition by returning revenue from the congestion charge to the general public of drivers by lowering the annual vehicle fee will not work for people with company cars, because this expense is part of the leasing price for them.

According to state statistics, a large proportion of people with company cars work in the Tel Aviv area, or at least visit it frequently. Furthermore, a large proportion of them are indifferent to the price of gasoline, maintenance, and depreciation of the vehicle. In other words, they do not care about the marginal cost per mileage, and have no motivation to drive less.

The result of all this is that the proportion of company cars on the road at peak times is substantially higher than the proportion of all vehicles. Their share in the payment of a congestion charge will therefore be significantly higher.

Estimates are that the added cost for drivers entering and leaving the Tel Aviv area during peak hours will be around NIS 1,000 a month, although at least part of the cost is likely to be offset by the fall in leasing prices as a result of the lower vehicle licensing fee.

That may not sound like much, given the average salaries in at the top of Israel's economic pyramid. We have already, however, seen people with company cars go to war because of a few dozen shekels a month. A virulent battle has been waged in the Knesset in recent years to lower the existing usage value of a vehicle.

Add to this the imposition of a tax on the usage value of the free parking benefit and other accompanying measures designed to eliminate employers' motivation for rolling the added cost onto employees, and what you get is a world war originating in the centers of power and influence in Israel.

We will therefore not be surprised if the outcome is a major compromise by the Ministry of Finance, for example an exemption from the congestion charge for various sectors, or innumerable political delays.

The taxi drivers are strong even without Katz in the Ministry of Transport

The taxi drivers are a very small group, but in the past decade, they have demonstrated extraordinary power in government corridors, and have effectively blocked or delayed quite a few transportation reforms. Theoretically, if we assume that all types of public vehicles will be exempt from the congestion charge, the plan for reducing the use of private vehicles should actually give the taxi sector a substantial boost.

On the other hand, opening the hired transport market to private-shared transportation services like Uber, which do not require a license to drive a taxi, is a red flag for this sector. Former Minister of Transport Yisrael Katz, who very effectively prevented the entry of shared transportation services into Israel for almost five years, has already moved on to another ministry. We would not, however, underestimate the political influence of tax drivers in the government and the Knesset.

The fact is that even current acting Minister of Transport Bezalel Smotrich recently promised taxi drivers that any attempt to introduce full services of Uber and its equivalents into Israel would take place "as part of a dialogue with the taxi drivers."

Mention should be made of one important point: almost all 120 MKs have a leasing car. We are not, God forbid, hinting that MKS include private considerations in their public decision-making. During all of the past four years, however, a struggle has been waged in the Knesset for an across-the-board reduction in the value of vehicle usage, or at least for some sectors, to the dismay of the Ministry of Finance's professional staff.

On the other hand, the Knesset is also aware that the issue of road congestion, especially in the Tel Aviv area, is becoming an important public issue with potential electoral consequences. Furthermore, MKs are well aware that this is a prominent reform dear to the hearts of the Ministry of Finance's professional staff, and which signifies the beginning of the budget killer season.

Therefore, until this reform is passed, and so that it does pass, the Ministry of Finance will have to prepare itself for a difficult and complicated political dance to the well-known Knesset give and take beat, and hope that the political price of success will not be higher than the expected NIS 1.5 billion annual revenue from the congestion charge.

In any case, the efforts to reduce the use of private vehicles still have a long, winding, and pot-hole filled road to travel that is liable to end in an impassible traffic jam, just like entering the Tel Aviv area in the rush hour.

Tel Aviv traffic jam  photo: Eyal Izhar
Tel Aviv traffic jam photo: Eyal Izhar
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