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Three Immediate Steps to Lower the Cost of Living, and Four More in the Long Term

The Israeli government has thrown up its hands in resignation in the face of the ever-rising prices battering the Israeli public, but there are steps that can be taken right now. Lowering the VAT on food, subsidizing electricity and public transportation, lowering drug prices and school fees, raising wages, and additional measures will leave Israelis with more money in their pockets | Opinion

An activist encourages shoppers to boycott products distributed by importers who have attempted to raise prices (Photo: Histadrut and HaNoar HaOved veHalomed)
An activist encourages shoppers to boycott products distributed by importers who have attempted to raise prices (Photo: Histadrut and HaNoar HaOved veHalomed)
By Erez Raviv

The Israeli government has thrown up its hands in defeat and resignation in the face of the ever-rising prices battering the Israeli public. The steps that are being taken are far too little and far too late. The government has abandoned the majority of the public to suffer, and has decided to assist only the most powerful.

Inflation in the month of June in Israel was 4.4% higher than last year, but most Israelis feel the price increases much more acutely. Housing prices rose by more than 15% in just one year, and rental prices followed suit.

The cost of electricity has soared, and an additional price hike set to take place in  January will leave prices 20% higher than they were in 2021. The Israeli public will pay much more for electricity, while the gas companies will get richer without a substantial change in their expenses.

Ultimately, the Israeli government can act to reduce the vast socioeconomic gaps between the general public and those who profit from the high cost of living. Spain, for example, imposed a temporary tax on the profits of energy companies in order to lower electricity prices. The government could do this, but it hasn’t. If the government was interested in lowering the cost of living, it could immediately implement these three steps, and take four additional steps in the medium and long term:

Three Immediate Steps

  1. Lower VAT on Food: The Ministry of Finance boasts that Israel’s value added tax (VAT) is without discounts and exemptions (except in Eilat, and on fruits and vegetables), but in developed countries it is customary not to collect VAT on food, or at least to collect a reduced tax of 8-10%.
    It is possible to lower the VAT in Israel, in an agreement with the marketing chains, thus making sure that the tax reduction will translate into significant price reductions, leaving money in Israelis' pockets.
  2. Subsidize Electricity: The spike in electricity prices spurs increased expenses throughout the entire economy, leading to higher household bills and increased operating costs at manufacturing plants and workplaces. The increase in the price of electricity serves only to increase the profitability of electricity producers and gas companies, further widening the socioeconomic gaps in Israeli society.
    The immediate cause for the price hike is the cost of coal, but coal is expected to disappear completely from the electricity grid within a few years, thanks to the increased use of renewable energies and domestic gas at a stable price. In the meantime, the electricity bill includes not only coal becoming more expensive, but also subsidies to the owners of private power plants and payments that the gas companies transfer to the state, which subsequently invests them abroad.
    The government needs to lower electricity prices sharply and quickly. There are many ways to do this. The government can raise taxes on gas companies and transfer funds that have already been collected to the "Citizens of Israel Fund," which promotes clean energies, instead of investing them in other countries.
  3. Make Public Transportation Cheaper: This month the government lowered taxes on fuel by 1.5 shekels ($0.46), leading to a significant reduction in the cost of fuel, but only for one month. The "Equal Path" reform in public transportation has not lowered prices, according to the latest calculations. The government did not add a single shekel to the public transportation budget in this reform.
    The reform’s discounts for frequent commuters are mainly funded by making travel more expensive for less frequent commuters. But price reductions don’t have to be a zero-sum game. In Germany, for example, all passengers enjoy discounted prices throughout the summer.
    Lowering public transportation prices by 20% can directly lower the cost of living for the working and middle classes.

    Three Steps in the Medium Term

  4. Lowering the prices of medicine, school fees, and bank fees: In addition to electricity and transportation, the government determines prices in a variety of sectors of the economy: drug prices and visits to specialist doctors; school fees paid by parents to educational institutions; various fees that Israeli citizens pay when renewing a passport or vehicle, etc.; and supervision of prices in the private market, such as banking fees.
    Prices are determined based on the conditions of each particular sector of the economy, but in a time of general price increases, the government can make a significant impact through an extensive series of rate reductions. Lowering the cap on banking commissions  is a well-known recipe for lowering the cost of living for the public.
  5. Increase budget allowances and wages: The most comprehensive way to address the high cost of living in Israel is to increase the income of its citizens. The government affects many of the sources revenues that constitute Israeli families’ bottom line, whether directly through setting budgetary allowances and wages in the public sector, or indirectly by acting as the largest indirect employer of subcontracted workers in the cleaning and security industries.
    What we need now is a temporary increase to wages and budget allowances, as an advance, until a new government is elected that can sign a series of comprehensive wage agreements and legislate an increase in budget allowances, especially the extremely low old-age allowance.
  6. Fight against the importers monopoly: Despite a number of recent reforms to importation laws, one element of the process remains untouched – the manufacturers abroad. These manufacturers have made an alliance with an exclusive group of importers in Israel in order to keep prices for basic consumer goods higher than in other countries.
    The government has attempted to make it difficult for Israeli importers to maintain exclusivity, but has made no efforts to impost sanctions against foreign manufacturers. This has resulted in a market that is supposedly competitive, but in reality is dominated by a small group of corporations that gouge prices on essential household goods.

    One Step in the Long-Run

  7. Social housing: It is impossible to stop the rampant increase in housing prices and rents all at once, but this is the area in which government involvement is most sorely needed. The cost of housing is an enormous burden on Israeli families that results in social dispossession and a constantly widening gap between the rich and the poor in Israel.
    The proven way to deal with this problem is to dramatically expand social housing systems, and not to preserve them only for the poor. A comprehensive range of social housing arrangements of all kinds: subsidized mortgages, public housing, government-initiated construction, rent-to-own housing, and others, can curb the rise in housing prices in Israel.

Currently, no party in the Knesset has proposed any such plan.

This article was translated from Hebrew by Matt Levy.

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