After the price of fuel in Israel soared to an all-time high at the beginning of the month (as a result of the sharp rise in the price of oil), and contrary to the position of the professional echelon in finance – Finance Minister Avigdor Lieberman today announced an immediate reduction in fuel tax by half a shekel. The tax on fuel will be temporarily reduced to three months, and in the next quarter the data will be re-examined in accordance with developments in the economy and worldwide.
Lieberman’s decision caught everyone by surprise not only because the move contradicted the recommendation of the professional echelon in the Treasury led by Ram Belnikov, who only this week expressed unwillingness to lower the tax, but that Lieberman himself spoke out against the move in the past on the pretext that it would encourage private car use. Raise the tax back.
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The price of a liter of gasoline, which was NIS 7.44 per liter following the last increase on April 1, will be reduced, subject to the approval of the Knesset Finance Committee, to NIS 6.94 per liter. However, the reduction is lower than the increase in the price of oil in the last two months, and is not expected to significantly reduce inflation, which is forecast to reach more than 4% in the coming months.
Although Lieberman ordered an “immediate” reduction, he also noted that it would need approval from the Finance Committee, which is expected to convene only next week, and has already sent about 1,500 reservations about increasing income tax credit points and increasing low-wage work grants.
The deficit shrank and revenues from the excise tax soared
So what made Lieberman change his mind? Last week, a dispute was revealed with the Bank of Israel over the tax on fuel when the Governor of the Bank of Israel, Amir Yaron, called for abandoning the tax on excise tax in the long run and moving to a congestion charge, which is considered a smarter and fairer tax.
The cost of living has been a burden on consumers in Israel not since today, and the tax reduction will not solve the problem, but Lieberman explains the change in his position on the good data of the economy. The data that Lieberman is talking about are the tightening of the labor market – which indicated a drop in unemployment to 3.2% in the first half of March, the rapid growth of the economy at 8% in the last quarter, and especially the government deficit data.
The state treasury will lose NIS 800 million
Even before the publication of official data this coming Sunday that will indicate the volume of government tax revenues, Lieberman revealed that the deficit fell to 1.6% of the economy’s GDP compared to 2.2% in February. It is likely that government revenues from the tax on fuel have skyrocketed and Lieberman is now minimizing criticism. Reducing the price of fuel by half a shekel to three months will involve a loss of tax revenue of NIS 800 million, after these amounted to NIS 18 billion last year in 2021.
What about the promise of electricity subsidies?
Lieberman is trying to collect points of credit when he mentions the compliments he received about the state of the economy from world – wide banking executives with whom he met last week in London. “Every quarter we evaluate the performance of the economy and make decisions accordingly. We will also make more decisions in the next quarter. At the moment, the concept is to return the money to the public,” Lieberman said. But the move was not made in coordination with the bodies related to the Treasury such as the Ministry of Energy, which may reflect the pressure of the Minister.
In early February, it was reported in Globes that some members of the coalition demanded a reduction in the tax on fuel and subsidizing the rise in electricity prices following the wave of price increases. Lieberman has already moderated the increase in the price of electricity in February, but a Globes survey shows that the minister has not yet signed the Electricity Authority’s order to lower the electricity tariff, which he announced at a festive press conference. Only when the Minister signs will the Electricity Authority be able to convene the council and update the tariff. The finance minister said in response that he would sign the order in the coming days. If it does, the tariff reduction will take effect on May 1st.
Next quarter: “Depends on the state of the world economy and markets”
The surge in the price of oil has led some European countries to subsidize the price of fuel at stations, although their situation is more difficult in the face of dependence on Russian gas, while in Israel gas prices are signed in fixed price contracts, so the remaining exposure is to the price of oil. “The issue of excise duty later depends on the state of the economy and international markets. We do not know what the determining price will be in the days of calculating the formula for the price of fuel. We will decide what to do next for developments.” “Right now the concept is to return the money to the public,” Lieberman said.
“I know how to make decisions based solely on data. I do not do putty in the midst of an earthquake. I constantly hear all sorts of advice from the tribune. Either people try to guess what the Treasury is trying to do, or they do not listen carefully to all the nuances I am interviewed about,” he explained. Lieberman changed his position, which also relies on Bloomberg’s estimates that the price of fuel has stabilized at around $ 105 a barrel and ranges from $ 99 a barrel to $ 112 recently.
Recently, pressure was exerted on Lieberman to reduce the tax on fuel as was done during the social protests in 2011, but the director general of finance, Ram Belnikov, said this week that the situation today is different and there is no need to reduce the tax.