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The Knesset Finance Committee just approved a new fine on excessive usage of water by households. Right now, urban households pay about NIS 5 per cubic meter, under a sliding scale that goes up to NIS 8. But households that exceed their quota could end up paying as much as NIS 28/cu.m.
Is water in such short supply that it should cost as much as NIS 8, or even NIS 28/cu.m.? If so, why is the majority of our water being sold to growers for under NIS 2/cu.m.? Actually, the real question should be, how did this situation come about?
I believe that the answer is a corollary of what I have modestly called "Meir's law": fiscal mischief is generally a result of keeping things off the balance sheet. Giving subsidies to agriculture through water budgets is responsible for causing a crisis in Israel's most precious natural resource, but the practice continues because it helps the subsidies escape public scrutiny.
Here's how it works. The fair market price for water in Israel is probably around NIS 4/cu.m. At the market price, agricultural demand would be considerably reduced, household demand would probably be modestly increased, and there would be no water shortage. This means the subsidy to growers is at least NIS 2/cu.m.; they are using over a billion cu.m. a year, so the subsidy is probably around NIS 3 billion per year. (The amount may be a bit different if I have misjudged the current price of water to growers or the market-clearing price.)
Does it bother me that the State of Israel subsidizes agriculture to the tune of NIS 3b.? Not much. I do think the amount is too high, but I also recognize that growers obtain their government handouts through the democratic process like other interest groups, and that most other countries also give huge subsidies to farmers.
What bothers me is first of all that the subsidy is conditioned on the scandalous wastage of Israel's most precious natural resource, and secondly that the subsidy is hidden. There is no budget item "water subsidies for growers;" the rations and the subsidized prices are arranged in separate negotiations and the billions of shekels of water expended are not a budget item.
Growers say they need subsidies to survive. The Israeli electorate is evidently willing to help them. So let's propose a win-win deal: Everyone pays the full market price, but every farmer gets a cash grant covering the added amount he needs to cover this price. Let the government hand out NIS 3b. in cash to growers. Now the growers are in a much-improved position; if they want they can spend all the money on water and they are doing the same as before. But now it will pay to greatly economize on water, which now costs about twice as much, and pocket the cash. Hundreds of millions of cubic meters will be saved, profits to farmers will skyrocket, and there will be no cost to the public, which would recoup the subsidy by increased income from water.
If this is such a great deal, benefiting farmers by giving them cash, benefiting households by saving them from a confiscatory tariff, and benefiting everyone by saving us from drought, why doesn't it happen? In my opinion it is because of the desire to keep this subsidy off the balance sheet. In most cases, this deceptive practice serves only to waste money, but in this case it causes grievous harm by causing shortages of a vital resource.
I don't begrudge farmers their billions of shekels in subsidies; in our political system every interest group is entitled to use their political power to obtain government support. Other sectors do this no less successfully, and the Israeli voter seems to want to support agriculture. But the effort to keep this subsidy hidden is costing households significant hardship and causing the country dire, perhaps irreversible, ecological damage.