Taxing the Tank: Motorists bear the brunt

Latest price hike struck a nerve among motorists, pushing some to organize demonstrations protesting that enough is enough with respect to squeezing the consumer.

A man fills his tank at a gas station (photo credit: Marc Israel Sellem)
A man fills his tank at a gas station
(photo credit: Marc Israel Sellem)
AMERICANS WHO COMPLAIN bitterly about paying $3 per gallon at the pump might wish to avoid entering a gasoline station in Israel, where, following an increase in the excise tax in January, the self-service price has now gone over $8 per gallon – and that is in a country where the national price of gasoline is set not in a competitive market, but by the Infrastructure Ministry.
The latest price hike – with more increases possibly on the way – has begun to strike a nerve among motorists, some of whom have organized demonstrations protesting that enough is enough with respect to squeezing the consumer. Over one hundred cars set out on a protest convoy from Glilot Junction near Tel Aviv to the Finance Ministry in Jerusalem on January 24, accompanied by significant media coverage.
The complaints were loud enough to attract the attention of the Knesset, where the Economic Affairs Committee has been conducting hearings on the matter. The committee charged the Knesset Research Department with publishing a first-ever special report on the high price of gasoline.
The report, which focused on comparing local pump prices with those in Western Europe, found that Israeli motorists have good reason to complain. In December 2010, the average price of gasoline in 15 Western European countries was 1.15 euros per liter (about $6.45 per gallon), compared to 1.41 euros per liter ($7.90 per gallon) in Israel, which is a difference of almost 25 percent – and that was before the January price increase.
According to the report, the price of gasoline comprises three elements: world oil prices; the marketing margin of fuel companies, and taxes. The spreads between fuel companies’ marketing and fuel-delivery expenses and their profits from the sale of fuel were nearly 80 percent higher here than in European countries.
Excise taxes are also higher here than in Europe: Israelis pay 0.78 euro per liter in excise tax ($4.37 per gallon), 18 percent more than the 0.67 euro per liter ($3.75 per gallon) paid by Europeans. On top of that, a 16 percent value added tax (VAT) is slapped on – after taking into account the excise tax, which means that the state is, in effect, partially taxing prices inflated by other taxes. Indeed, most of what the Israeli motorist pays at the pump goes directly to the taxman.
With the report as ammunition, Knesset Members competed to outdo each other in issuing populist statements calling on the government to do something to ease the pain of motorists paying at the pump. The list of MKs stepping up to the microphone with that message included ruling Likud party members. Given that the Likud is the major government coalition partner, should one expect immediate policy changes? Not necessarily. The Finance Ministry will very probably be loath to part with the extra revenue that it receives from the combination of high excise taxes and Value Added Tax (which, because it is calculated as a percentage of the price, rises with every up-tick in the price of gasoline). It has, for the same reason, stood firm for many years against reducing the tax on new car sales, which is much higher here than in most places in the world.
The proper functioning of government certainly requires some taxation revenue.
The extent of government spending, and the tax rate needed to support it, is legitimately a subject of political debate. But the relative composition of direct taxes versus income taxes also deserves review.
Prime Minister Benjamin Netanyahu has throughout his political career pushed hard, and successfully, for reductions in income tax rates, both personal and corporate.
If those tax reductions are partly offset by heavy consumption taxes, such as VAT and excise taxes, which are by nature regressive taxes, then something has gone wrong along the way. Perhaps it is time to ease some of the burden imposed on the poor motorist.