Sunday, February 13, 2011

Gas Strike

I used to think that the price for gas (95 octane) in Israel was so high was because of the Arab boycott. Israel couldn’t buy Arab gas, and thus had to get it from more expensive sources. It may be true to a limited extent, and I’m sure that the price that Israel purchases gas at is higher than much of the rest of the world, but after listing to an interview on RadiYosh this morning I learned some interesting facts.

Why am I even writing about this?

Because the price of gas has gone up - again. We’re now paying NIS 7.26 a liter (Around $7.50 a gallon!). Compare that to around $2.78 a gallon in the US.

I think twice before driving to a meeting, driving to Jerusalem, or driving to my in-laws (just kidding on that one).

But it’s not just the price of gas that has gone up, but the price of bread and other basics are also rising steadily.

Israel’s economy is strong, unemployment is low, yet for some reason it appears to me we risk entering a high inflationary period (the low unemployment-high inflation correlation actually makes sense according to some economic theories).

The interviewee pointed out something. As gas prices rise, so do the cost to transport these basics. As a result prices rise all around.

I would add, that with the building freeze in Yesh(a) and restricted building in Jerusalem, housing prices are also rising due to lack of supply.

And what do housing and gas prices have to do with one another?

They are both being artificially inflated by the government.

The government is blocking needed construction from occurring where it is needed and wanted the most, in the suburbs around Jerusalem (Yehuda, Binyamin), and the suburbs around the Mercaz (Shomron), and in Jerusalem itself (excluding the out-of-reach luxury apartments for ghost residents). Obviously housing prices rise when the government restricts supply.

The price of water (Water!) has gone up too (to discourage excessive water usage during the drought).

And to top it off, minimum wage will be going up, which will cost companies more and either bring about layoffs or increased prices.

Going back to the start of this post, in terms of gas, Israel buys gas at around NIS 2.50 / liter.

Over the past few months, the price of gas that Israel buys gas at on the international market went around NIS 0.16 / liter. The current dollar-shekel exchange rate raised the price around NIS 0.14 / liter. But the real culprit here is the government. On top of those external costs the government jacked up the taxes by adding another NIS 0.85 / liter to the cost of gas.

All in all, we’re paying the government around NIS 4-5.00 / liter in taxes on gas!

It’s outrageous. Gas is not a luxury, it’s a necessity in today’s economy,

I don’t know why they’re raising the price of gas other than because they can. I do know that gas tax revenue is going to drop, because people simply can’t afford to drive at these prices.

(Actually the Ministry of Finance is responsible for the demand for the gas tax hikes. I suspect it’s because they think linearly. If you raise gas tax prices, revenue will increase. I don’t think they give much weight to the idea that usage will drop.)

If they wanted to really increase their gas tax revenue then LOWER the price of gas. Lower it to NIS 4.5, even to NIS 5.0. People will get back on the road. People will drive. Gas tax revenue will go up. Lowering the latest tax increase by a symbolic NIS .20 / liter is like Mubarak appointing Suleiman as Vice President or Abdullah replacing his cabinet.

Prices aren’t going up because of natural market conditions, because of supply and demand. Prices are going up because the government is artificially raising the prices through taxes and restricting supply in the housing market.

In Netanyahu’s first term he lowered taxes a little. But it looks like he’s turned his back on what was a successful good start.

Netanyahu needs to allow building in Yesh(a). Netanyahu needs to work on rezoning existing housing to allow for add-on apartments in existing buildings. Netanyahu needs to encourage the development of rental complexes in the cities. Netanyahu needs to drastically cut taxes on gas. Netanyahu needs to seriously reduce VAT.

Jameel adds, get rid of duty-free cigarettes, and increase the taxes on cigarettes instead. Cigarettes cost the economy a tremendous amount in health care.

My point is. I am prepared to go out and protest against the price of gas. I just don’t know if I can afford to drive to the protest.

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BL said...

7.26 NIS per litre is pretty much exactly the price we pay for petrol in the UK. It's very highly taxed.

JoeSettler said...

Why I won't be joining the protest against the gas hike in front of the Knesset.

I would love to join the protest that is happening now against the gas hike, except I believe it will be used and abused for political purposes.

Haim Oron of Meretz is leading the protest in front of the Knesset and that will probably guarantee that it will turn into an anti-government and anti-Bibi campaign as opposed to a 'lower the gas tax' campaign.

If that turns out to be not true, great, but let's see.

Anonymous said...

How can we ask that the taxes be put on cigarettes instead of gas?

When I'm at the bus stop, I really wish cigarettes cost more :(

Ephraim said...

Some of the price increases may be attributed to the US. The US "stimulus" is flooding $$$ into the economy. But they have little control where the money goes. Certainly, expanding the money supply will cause inflation- but exactly how that inflation manifests is another matter. Because of low confidence in the US economy, those who do received stimulus dollars are unwilling to invest in hiring since that's perceived as too risky. What's perceived as safer is to pump money into commodities which are seen as safer investments, and also are seen as hedges against inflation. This speculation itself causes inflation as commodity prices skyrocket across the world. Thus, even countries with a conservative monetary policy will see inflation.

Anonymous said...

Hello, Hello Hello
Gas is taxed because driving cars:
2) contribute to Israel's negative balance of payments (more import than export)
Soultions MUCH better than lowering the price of gas (including the taxes) would be to
1) ENFORCE SPEED LIMITS (driving at 120-140 uses MUCH more gas)
2) TAX SUVs at a MUCH higher rate (gas guzzlers).

Yochanan said...

Israel's gas price is pretty much in line with what all of Europe is paying.

Nothing special about it.

Anonymous said...

Ephraim, the stimulus doesn't have that much money entering the economy, and alot of the money is tied to specific funds and projects, only paid after completion.

Armil@gas south atlanta said...

Thanks for this informative post. Thanks for reliable information:Because the price of gas has gone up - again. We’re now paying NIS 7.26 a liter (Around $7.50 a gallon!). Compare that to around $2.78 a gallon in the US.

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