(photo credit: Courtesy)
On Wednesday, a private members’ bill introduced by MKs Alex Miller and Faina
Kirschenbaum of Israel Beiteinu on the cancellation of VAT on water has just
come up for preliminary reading. The bill, first submitted in January 2010,
claims that until the municipal water associations were established in 2001,
there was no VAT on water, and that the VAT merely placed an additional burden
on consumers, whose water bills have been mounting in any case.
price of water has gone up significantly in recent years is
undeniable. The Union of Local Authorities has been blaming the
independent municipal water associations for the rise. In fact, the associations
were established because many local authorities were accustomed to using money
collected by means of the water bills for purposes other than maintaining and
improving the water system, and the government decided to end this practice. The
number of associations, and the way they operate, are not the culprits in this
The price of water has gone up both because the cost of producing
it has risen significantly, and because the government is no longer willing to
subsidize that cost.
For years there was an argument between the water
authorities and the Treasury as to whether there is a water shortage, or whether
the problem is merely one of price.
“Raise the price of water to its
marginal production cost, and you will see there is no water shortage,” the
“Treasury Boys” used to say. Some Treasury officials were actually willing to do
away with the country’s agricultural sector, which used to be responsible for 70
percent of the demand for water.
But in the meantime, even the Treasury
has admitted that beyond the issue of price and the future of agriculture, there
is indeed a shortage of water from natural sources, and that something must be
done about it beyond increasing prices or reducing demand.
The truth of
the matter is that the shortage is potentially only in water from natural
sources; the quantity of water we can produce or purchase is unlimited. We are a
world leader in know-how regarding water production. Water can be produced by
desalinating seawater or saline ground water, by highly purifying sewage water,
and by drilling for it to much greater depths (deep under part of the Negev
there is a vast ocean of water). We can also import water by tankers or
pipelines. Potential exporters include Turkey and Croatia.
this raises the marginal cost because of high development and production
AND WHAT about demand – should the government directly intervene
in water consumption? There is no doubt that demand for domestic use can be
drastically reduced, not only by discouraging waste and luxury consumption (i.e.
private swimming pools), but also by doing much more to repair pipe leakages.
Much has already been done to stop the growing of water-guzzling crops such as
cotton, and introduce efficient watering systems. Industry has also done
a lot to limit its water consumption. Much more can be done to use
water-saving plants in both public and private gardens, and to enforce existing
strict regulations regarding the washing of vehicles.
The issue finally
boils down to policy formulation and decision making. The government must
make strategic decisions regarding how much water to produce artificially and by
what means, and on how much effort to invest in influencing the way water is
used. Once these decisions are taken, it should be left to the experts in the
water authorities to implement them.
Unfortunately, the government’s
decision- making process (not only with regard to water) is extremely faulty,
and the percentage of strategic decisions actually implemented is relatively
low. This is the rub.
To return to Miller’s and Kirschenbaum’s bill, it
has more to do with what basic products (besides agricultural produce) should be
exempt from taxation for social reasons – which is separate from the question of
how the basic price of water (before VAT) should be fixed. We have come a long
way since the price of water was fixed by a Knesset subcommittee made up
primarily of representatives of the agricultural lobby but there is still a long
way to go. Demagoguery and disinformation are not helpful in this
The writer authored the report of the Knesset Committee of
Inquiry on the Water Sector in 2002.