Cut gas taxes!

The state should not be using taxation to coercively reeducate its citizens to drive less and use more fuel efficient cars.

February 28, 2012 22:51
3 minute read.
Gas prices are going up

Gas prices. (photo credit: Marc Israel Sellem/The Jerusalem Post)

On Wednesday night at midnight, gasoline prices will rise to record levels. A liter of 95 octane gas will climb about 30 agorot and cost about NIS 8, approximately double the price in the US and about the same level as in Germany, Italy and Norway.

Treasury officials say the rise in gas prices is a direct result of global trends. Should tensions explode between the West and Tehran over the Iranian regime’s push to develop nuclear weapons, say economists, oil supply could be disrupted. Anticipation of a sudden shortage has been driving prices up.

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Despite claims by Treasury officials, however, international analysts are actually predicting that oil prices, which have dropped slightly in recent days, will continue to fall in the near future. As Israelis prepare for yet another gas price hike at home, it seems that there is an opposite trend worldwide. A report released recently by Capital Economics predicts that oil prices could fall as much as $10 a barrel.

Other factors that might drive down gas prices include release of emergency crude stock and the perception that Iran will not make good on its threat to block the Strait of Hormuz, through which one-fifth of the world’s oil tankers pass every day.

Though Treasury officials would like you to think otherwise, the price at the pump is only partly connected to global market trends. More than any other factor it is government policy that determines price disparities around the globe from Rome to Los Angeles, from Oslo to Cairo. In Latin American and Middle East nations, such as Venezuela and Saudi Arabia, oil is produced by government-owned companies and local gas prices are kept low as a benefit to citizens.

In contrast, in many European countries and in Israel, gas is heavily taxed.

In addition to the 16 percent value-added tax, we are forced to pay a NIS 2.96 excise tax on every liter of gasoline. The price of a liter of gasoline is further jacked up due to the fact that we pay VAT not just on the gas but also on the excise tax. This redundant taxation – an indirect tax on an indirect tax – adds nearly half a shekel to each liter of gasoline. And this is a regressive tax, since both rich and poor own cars or use public transportation that will also be affected by the price rise.

MK Meir Sheetrit (Kadima) has drafted a bill – slated to come up for a vote Wednesday in the Knesset – that would do away with this redundant tax. In parallel, Prime Minister Binyamin Netanyahu has asked the director-general of the Prime Minister’s office, Harel Locker, a former tax attorney, to look into alternatives that would lower gas prices. And MK Carmel Shama-Cohen (Likud), chairman of the Knesset Economics Committee, has drafted a bill to be presented Wednesday that calls for temporary cuts in VAT when gas prices climb above NIS 6.6 per liter.

But Treasury officials are warning that gas taxes must not be touched. Every 10 agorot tax reduction will result in a state revenue shortfall of NIS 700 million a year, they say. And gas tax revenues are already expected to fall as a result of the higher gas prices that cause people to use their cars less. Besides, according to Doron Cohen, the temporary director-general of the Treasury, the Finance Ministry has already agreed to a NIS 2.5 billion decrease in gas tax revenues as part of the Trajtenberg Committee recommendations.

Cohen was referring to the cancellation of a planned excise tax hike. The hike was recommended by Bank of Israel economists in a 2010 report as a means of reducing pollution by discouraging Israelis from driving too much. Cohen said that instead of cutting gas taxes, which would force the government to cut the budgets of various ministries, citizens should buy more fuel efficient cars and drive less.

We agree that for the sake of pollution reduction and energy conservation, it would be advisable for Israelis to drive less and use more fuel efficient cars.

However, we do not believe that the state should be using taxation to coercively reeducate its citizens.

And if a tax cut results in lower state revenues, so be it; the gas tax should never have been charged in the first place.

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