At midnight, Tuesday, fuel prices in Israel rose by 5.34%, which means that a liter of gasoline will cost an additional 34 agorot, or NIS 6.71. That’s $2.12 per liter or $9.64 per gallon.
Earlier this week, Finance Minister Avigdor Liberman (Israel Beiteinu) and Economy Minister Orna Barbivai (Yesh Atid) sent letters to Israel’s giant importers and manufacturers who had announced upcoming price increases— S. Schestowitz (consumer goods and cosmetics), Leiman-Schlussel (baked goods and candy), Diplomat (food and personal grooming), Ristretto (food), Sano (detergents), Osem (food), and Strauss (food)—openly demanding, in the most undiplomatic language: “At this complex time it is expected of your company to take responsibility and announce the cancellation of the price increase you’ve announced.”
Except that while the rise in Israel’s already stunning cost of fuel can be explained by the rise in the global price of fuel, the biggest chunk of that price comes from Excise and VAT taxes. Indeed, If excise and VAT taxes had been frozen at their rate last December, the price to the consumer would have been cut in half and the rise in gasoline prices would have amounted to only 17 agorot per liter. It’s still a lot, but easier on the consumer’s wallet. But the Israeli government – those same two economic ministers – has no plan to restrain itself the way it demands that the importers and manufacturers behave. Why should it? In November 2021 alone, the tax on gasoline brought in NIS 1.8 billion ($0.57 billion) and in all of 2021 NIS 21.5 billion ($6.8 billion).
But wait, there’s more. Water prices are going up, depending on where you live in Israel. Real estate taxes do, too. And the price of electricity goes up 5.7% on Tuesday. It has to do with the price of coal, which recently went up by 100% – 20% of Israel’s power plants still use coal. In a country with 300 sunny days a year and a breeze-producing coastline that goes on forever.
The two economic ministers’ letter continued: “By 2021, the shekel has strengthened significantly against other currencies in the world, in a low inflationary environment. This means that products imported by companies to Israel have been significantly reduced for them – without respectively reducing the cost to the Israeli consumer, and it remains one of the highest in the world for these products.”
The ministers summed up bluntly: “Your announcement of a price increase at this time is cynical and hurts the citizens of our country.”
Ouch. Israel is still a democracy, and these companies can do whatever they like—within some legal constraints; but when your government knocks and demands that you cancel your scheduled price hike, you probably pay attention. Especially since the senders are in a position to hurt you badly.
So there’s some hope, at least when it comes to food.
The economic giants listed above have enjoyed to the fullest the unprecedented appreciation of the Israeli shekel against the dollar and the euro since 2008. Add to that the Corona pandemic which in 2020 caused excess demand for food and other supermarket products when only the chains were allowed to admit customers – and profits rose accordingly.
A simple analysis of the products whose prices in Israel are abnormally high compared to other Western markets (dairy products and eggs come to mind) reveals that they are made by industries that are either protected from competition by government policies or are subject to onerous regulation.
In November 2021, the Knesset Department of Budgetary Supervision issued this comparison between the average spending on food in Israel and in the European Union (in NIS millions):
Bread and cereals: Israel 154; EU 90
Meat: Israel 143; EU 99
Fish: Israel 124; EU 101
Milk, cheese, and eggs: Israel 179; EU 90
Oil and fat: Israel 143; EU 94
Fruits and vegetables: Israel 96; EU 91
Soft drinks: Israel 149; EU 90
Alcoholic beverages: Israel 155; EU 86
In comparison, consumer goods the Israeli economy does not produce and are only imported from abroad (televisions, cellphones, textiles, household products) are available at prices that are roughly equal to what they would cost in other countries, with some benign taxes. The reason why Osem and Strauss can charge exorbitant prices for the stuff that goes into your pantry and fridge is that they are largely protected from outside competition.
And so, the trick to bringing down the cost of those products is to introduce structural changes in the economy designed to reduce bureaucracy, remove unnecessary regulation, and liberate the Israeli economy from import barriers such as tariffs and quotas, and of course to encourage competition.
Finance Minister Liberman has been promising these moves for decades, and he has even started to deliver in some areas. But he could move a lot faster. On Monday, Liberman addressed the wave of rising prices in a meeting of the Israel Beiteinu faction in the Knesset, saying: “It should be understood that the rise in prices in the State of Israel is the most moderate in the world.”
That’s probably the latest definition of Chutzpa: when your food and energy prices are already the highest in the OECD, and you brag about not raising them as much as countries where prices are half of what your citizens are forced to pay.