The Israeli government is bewildered by the wave of rising costs flooding the market, as if it is powerless to mitigate it. In both the budget and the Arrangements Law, this government gambled on a single tool: market competition. So far, the results have been disappointing, and it has been wielded unwisely. Lowering tariffs has already brought agricultural damages, moldy eggs, and products with safety risks. Recent years teach us that importers do not pass the reduced costs on to the consumer.
Continuing this gamble, over and over again, using the same tools and expecting different outcomes, seems like irrational behavior. The government indeed cannot influence the prices of multinational cartels like the shipping industry or of raw materials like gas and coal; nevertheless, it has plenty of ways to lower the cost of living and to preserve a fairer economy.
Distribute the extra money: The government must internalize that treasury funds are for its citizens, not the opposite. Over the past year, the state has collected tens of billions of shekels of surplus. Not a single shekel of this surplus has been given back to the public. Maybe the time has come?
Abolish hidden taxes: Health and education services have controlled prices, but the government enables significant taxation on private sector services for these public services.
Education: Parental participation fees can reach thousands of shekels per year from the pockets of citizens who have a right to free education. The is the most hidden tax. If the state takes on these payments, Israelis struggling to make ends meet will have significantly more available funds.
Healthcare: There is a co-pay for doctors’ appointments, blood work, and referrals – this is a hidden tax on healthcare. The state can bear these costs.
Electricity: The excise tax, which constitutes 2.2% of the rising electricity costs, funnels an additional 540 million shekels from the pockets of citizens into the treasury. It is unnecessary and the government can easily abandon it.
Reestablish price controls: In the Israeli market, there are plenty of products whose costs do not depend on supply and demand, such as cottage cheese. Tnuva raised its price by 40% after McKinsey Consulting advised that the price hike would not adversely impact sales.
When particular products’ costs spike unreasonably, the state is not obliged to wait years for a ruling from the Competition Authority, legal appeals, and court decisions. It can widen the price controls to include a narrow group of products and to send a message much clearer than any tweet, letter, or press release. This simple change in the government’s approach could rein in future price hikes.
Fair taxes: Value added tax (VAT) stands at 17%, relatively low, but not including a handful of exemptions common in Europe. In practice, its proportion compared to state revenue is relatively high for developed countries, despite being considered a regressive tax that widen economic gaps and represses growth and economic activity.
In Israel, income taxes are relatively low, both with respect to taxation brackets and the total sum collected. The government can implement a tax reform that will shrink the VAT by 3% while compensating with increased income taxes. Income and corporate taxes can both be raised.
Such a change in the composition of taxes with not damage the state coffers, but the middle class and the poor will pay less, and the wealthy, more. This kind of change would directly lower the cost of living for most citizens and raise it slightly for those whose financial situation is stable anyway. Besides reducing economic gaps, this type of policy would accelerate growth and grow the budget.
Deal with the housing market: One of the clearest examples of the failure of the free market in Israel is the housing market. In developed countries around the world, there are expansive approaches to protect lower and middle class citizens. Governments limit the free market’s ability to make prices spiral out of control.
In Israel, these approaches are particularly sparse (e.g., public housing), ineffective (e.g., accessible loans), or non-existent (government driven construction, protected rentals, and support for cooperative housing).
Housing taxes play a significant part in growing state revenue, but it does not ensure proper housing for all citizens. Most people are abandoned to the rising costs in the failing market spiralling out of control.
Protect the disadvantaged: As part of the paradigm for electric and water bills, disadvantaged populations are eligible for reduced charges. This eligibility includes a discount of mere dozens of shekels each month. If there is truly “no choice,” and the rising costs derive from the increased price of coal and green energy sources, the government can at least lower the burden on the weakest strata of society by widening eligibility and increasing the discount.
Prevent workplace exploitation: Part of the high cost of living is not included in any statistic and embedded in the ugly phenomenon of workplace exploitation. Delayed wage payments, wage theft, unpaid damages, pension theft, and other violations total billions of shekels each year that belong to workers but remain in their employers’ pockets.
The state needs to fund a strong enforcement arm and lay out a safety net that will make it easier for workers to actualize on their right to unionize and to defend their rights. These two tools have been proven to mitigate the phenomenon of workplace exploitation. Such action will indirectly reduce the cost of living, especially for disadvantaged employees.
From a public standpoint, the government now stands before a test of its ability to take meaningful steps to make the Israeli economy more regulated, balanced, and fair. During the coronavirus crisis, the global economic elite returned to its support for enlarging state budgets, investments, and taxing the wealthy as tools for promoting economic stability and balance. The new expenditures in a meaningful program to combat the high cost of living can be funded by a combination of improved economic growth, increased investment, fair taxes, and the continued trend of reducing interest on historic debts.
This article was translated from Hebrew by Zach Pekarsky.