Fischer blames high prices on market concentration

Bank of Israel governor says protests over high cost of living came as a surprise; calls for new c'tee to check high prices.

By NADAV SHEMER
August 1, 2011 12:15
2 minute read.
Bank of Israel Governor Stanley Fischer

Stanley Fischer speech at BGU 311. (photo credit: Dani Machlis/BGU)

 
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Bank of Israel Gov. Stanley Fischer admitted on Monday that nationwide protests over the high cost of living took him by surprise, and said the problem was mainly a result of market concentration.

Fischer called for the establishment of a committee to investigate the disparity in prices between Israel and the rest of the world.

“I assume the problem is a lack of competition,” he said, speaking at a press conference at his Jerusalem office.

“We pay too much for vehicles because of the import tax, among other things. My impression is that the prices in Israel are very high.”

Fischer said there were four main problems that had to be dealt with: high housing prices, the cost of living, tax policy, and the government’s ability to provide services the public needs in a manner befitting the changing reality.

It was the first time Fischer has spoken out publicly on the cost of living since demonstrators began erecting tents in major cities more than two weeks ago to protest the rising cost of housing.

Calling the protests “very dramatic,” he said: “It was surprising, because according to all the economic data the market is very strong, with a low unemployment rate. But you can’t not be impressed by the fact that 150,000 people came to the demonstrations on Saturday night, and by what is happening in the tent cities all around the country.”

Fischer spoke in depth about the housing crisis, rejecting criticism that the blame for soaring prices could be pinned on his dramatic lowering of the benchmark interest rate starting in September 2008.

“Had we not lowered the interest rate and just kept it at 4.25 percent, we wouldn’t have a housing problem, but instead we would have an unemployment problem similar to that of the USA and Europe, where it has reached almost 10%,” he said. “In addition, had the interest rate been higher, there would not have been more homes but rather less.”

The central bank governor welcomed Prime Minister Binyamin Netanyahu’s initiative to review taxation policy and recommended he first examine the increase in indirect taxes, such as VAT, compared with the drop in direct taxes, such as those on income. But he warned against reacting too quickly to protesters.

“There are no magic solutions to the problems,” Fischer said.

He also backed the prime minister’s National Housing Committee’s bill, which is intended to speed up housing construction by sending projects marked for expedited construction to subcommittees, and called for supervision teams to be established, as was done in the 1980s to deal with hyperinflation.

Turning to the protesters themselves, Fischer said they were the people who contributed to the state and its economic success, but their demands were political, and if they wanted to impact policy they must move beyond demonstrations and into the political arena.

“They must enter politics,” he said. “Work in the Knesset is difficult, convincing people is a more difficult job than determining the interest rate. [But] if the demonstrators don’t enter politics, it will be a loss for them and for us all.” •

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