Over the past few days, we have watched with amazement the huge media campaign run by the Ministry of Finance around the "lowering" of the price of gasoline. Senior officials at the Ministry of Finance and the Ministry of National Infrastructures, led by Minister of Finance Yuval Steinitz and Minister of National Infrastructures Uzi Landau, have staged a "bitter confrontation" covered extensively by the media, focusing on the several agorot that will be reduced on the fuel margin over the next few years.
To save our readers' precious time, let's skip straight to two axioms that sum up this embarrassing situation. The first is that even if the price of oil on global markets soars sky-high, and everybody is complaining about indirect taxes - the Ministry of Finance will never voluntarily significantly lower the excise on gasoline.
From the Ministry of Finance's point of view, gasoline is a rich and stable gold mine that puts NIS 14 billion a year into the state coffers. Excise income has been rising in recent years because demand for gasoline is remarkably elastic - even though the price of gasoline and diesel has spiraled upwards, demand has grown.
The second axiom is that the fuel companies will never significantly lower their marketing margins, and if they do, it will just seem that way, while they will really offset any reduction to consumers by raising something else. They have good reason to feel confident. The Ministry of National Infrastructures works to protect their interests.
Because the Minister of Finance fully understands all this, we may well ask why go through all this meaningless public circus about lowering prices. There are two possible answers. Perhaps the public is stupid and has no influence on the matter, or maybe Steinitz is convinced that we are stupid and powerless.
The first answer is probably closest to the truth. The fact is that Israelis pay the highest gasoline prices in the western world, when adjusted to the purchasing power of salaries, and not just higher but tens of percentage points higher. Thorough research by the Knesset's economic research unit for the Economics Committee in February laid bare the figures.
While the price of gasoline in Israel is similar to Western European countries, when adjusted to the purchasing power of Israelis, the price of a self-service liter of 95 octane gasoline turns out to be 27.4% higher than the European average. Institutional organizations get to pay 24.5% above the European average. Diesel is 36.3% higher than the European average.
And what about the marketing margin that the fuel companies are so opposed to lowering. The same Knesset research found that the marketing margin was 26.6% higher than the European average, and 57.6% higher when adjusted to purchasing power.
When the Ministry of Finance runs out of excuses in defending the way it milks excise, it usually pulls out its ultimate excuse - it is an environment tax. - fuel pollutes, damages the environment and the health of the public and high excise is designed to lower the cost of environmental and social damage.
We really appreciate the Ministry of Finance's concern for our health and for the birds, bees and trees but let us dwell for a moment on another finding of the Knesset research. It said, "The success of an environment tax depends among other things on available alternatives for a polluting product such as efficient public transport as an alternative for drivers of private vehicles paying excise. The main aim of the environment tax is as an incentive to reduce pollution and not increase state revenues. In the long term, the success of the environment tax is reflected in reducing pollution and in its wake lowering income from the tax."
We now just have to wait for the ceremony in which Ministry of Finance officials will receive awards for reducing revenues from fuel taxes.
Published by Globes, Israel business news - www.globes-online.com - on August 31, 2011
© Copyright of Globes Publisher Itonut (1983) Ltd. 2011