THE TEL AVIV skyline.
(photo credit: REUTERS)
Is Israel’s exorbitant cost of living finally changing course? According to an analysis by investment house Psagot, it is, though only in terms of tax and tariff reductions.
Actions taken by the current government have saved the average family NIS 2,500 a year, though there is still far to go, according to the study conducted by economist Guy Yehudah.
“The cost of living in Israel is still among the highest in the world, but it seems that the position of the Israeli consumer has improved in the past year,” the study said.
Real wages, it noted, rose 3 percent in 2015, while the prices on numerous goods fell.
Because the study focused on savings accrued from reduced taxes and tariffs, however, it did not examine base prices of products. Traditional economic models show that reducing taxes accrues benefits to both consumers and producers, and can skew one way or the other depending on the product in question.
For example, the study found that the greatest reduction in taxes came from the 1-percentage point drop in value-added tax, from 18% to 17%. That reduced the average family’s costs by NIS 433 a year, it said. But because VAT is included in the sticker price on products, some economists have argued that some sellers may keep items priced as they are when the tax goes down.
Other reductions, such as scaling back insurance costs, public transportation prices, and excise taxes on water, were more straightforward. All in all, the study found, an average family paid NIS 2,558 less in tariffs and taxes, resulting in a 1.77% drop in consumer prices.
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The drop in fuel prices resulting from global reductions in energy commodity prices saved families another NIS 1,000 a year.
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