This month, in an ostensibly generous act, the Ministry of Finance announced a temporary reduction in the gasoline excise by NIS 0.31 per liter. The measure kept the price of full-service 95 octane gasoline at NIS 7.35 per liter, after Israelis had already adjusted to NIS 7.60 per liter earlier this year.
However, the ministry's so-called gift is a bad joke in absolute terms, and especially compared with the price of gasoline in Europe, which has the world's highest gasoline prices. The European Commission is generous enough to provide Israel with source for comparison, through its weekly monitoring of average after-tax fuel prices in EU member states. The report for the first week of August sheds light that bursts the illusion of lower excise and fuel prices in Israel.
The current price for full-service 95 octane gasoline at the pump in Israel is NIS 7.35 (€1.44) per liter, which is the basis for comparison with the EU. Assuming stable global fuel prices and the shekel-euro exchange rate, the price of gasoline in Israel should again rise to around €1.50 per liter, when the excise "gift" is taken back. The temporary excise cut resulted in taxes (excise and VAT) amounting to 55% of the consumer price gasoline, and when the cut is rescinded, the rate will revert to 60%.
A comparison with prices in Europe shows that, even after the excise cut, the price of gasoline in Israel is higher than in most EU member states. Gasoline costs €1.378 per liter in Austria, not one of the cheaper EU states; the price in Cyprus, Spain, and in other countries is €0.20 less per liter than in Israel.
Although the current average price of 95 octane gasoline in the EU is €1.508 per liter, which puts the price in Israel slightly below the average, but the current EU average price comes after a series of aggressive tax hikes by several revenue-starved governments. In Greece, for example, the price of gasoline has reached an all-time of €1.70 per liter, following a very sharp excise hike in an effort to fill the empty treasury.
As for the ratio of the level of excise and the price of gasoline, Israel is ranked high in a comparison with the EU. The 55% government take on gasoline puts Israel among the world's most heavily taxed countries, and almost seven percentage points above many EU states. When Israel's excise cut is rescinded, Israel will climb to the top of the charts, alongside Greece, Portugal, and Italy.
So if the price of gasoline is in the middle of EU prices, why are Israelis complaining? First of all, Europe is a high benchmark for comparative purposes. In a global comparison, the price of gasoline in Israel and the government's take is tens of percent higher than the average. In the few countries with a higher gasoline price and excise than in Israel, such as the Netherlands, Denmark, and the UK, there is a strong environmental agenda that compensates owners of high energy-efficient vehicles and reinvests a substantial part of the excise revenue in environmental projects.
In Israel, however, while the Ministry of Finance now and then mentions the need to "reflect environmental damage in the fuel tax", when it comes to using the revenue to finance environmental project, the ministry does nothing. It should also be borne in mind that most high-tax countries offer good alternative public transportation networks. As for Israel, just ask the developers of the country's light rail systems.
Published by Globes [online], Israel business news - www.globes-online.com - on August 21, 2011
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