For the third time this year, Prime Minister Binyamin Netanyahu rode in on a white horse at the last minute to rescue the country from an expected increase in gas prices. But as soon as the nation completed its collective eye roll, the reality sunk in that gasoline had reached its highest price in Israel''s history.
At NIS 8 per liter ($8.16 per gallon), citizens were justifiably upset at the toll the new price would have on their pocket books. Finance Minister Yuval Steinitz poured unnecessary salt on the wound by claiming that the price was the inevitable result of sanctions on Iranian oil; the nation obviously prefers expensive gas to a nuclear Iran, he said.
In fact, much of the price comes from the 48 percent excise tax Israelis pay for their fuel. A Finance Ministry official even went so far as to say the Treasury had already lost NIS 2.5 billion in revenues from Trajtenberg-related gas tax decreases, and didn''t plan on lowering them any further.
But setting aside the brazen politics, the very real question remains of how high gas prices ought to be for a country like Israel. And as it turns out, there are some strong policy reasons to keep gas prices high.
While economists say prices should reflect basic supply and demand, they also argue that taxes (or subsidies) may be called for when a specific product has “externalities”—costs (or benefits) not borne by the buyer or seller.
In this case, gasoline usage contributes to air pollution (and all the health implications associated with it) and traffic congestion. Governments spend money on roads and infrastructure to facilitate driving, and deploy militaries to secure strategic energy supply lines.
According to the International Energy Agency, gasoline taxes are “justified by the environmental and energy-security benefits that those taxes yield, in addition to the revenues that they generate. By driving up retail prices, taxes curb the growth in domestic demand, reduce air-borne emissions and lower import needs.”
For those who remain unconvinced, The Center for Investigative Reporting put together this handy video on the subject: