Let's start with the good news: the plan to lower the cost of living in Israel is immeasurably important, and despite some "holes" it mainly indicates taking real steps in the right direction.
During the press conference on Wednesday, the Minister of Finance, Avigdor Lieberman, said that this is only the first phase and the sequel will come, and it is to be hoped that this will really happen.
Quite a few critics of the program said that Prime Minister Naftali Bennett was pressured by the public protest and newspaper headlines, and in addition, the fact that it was a narrow government forced him to act. What is important is that the government works and does.When was the last time a comprehensive plan to lower the cost of living was presented here? Apart from specific initiatives - such as the cornflakes reform that did not really succeed - for years no plan of this magnitude was presented here.
As mentioned, there are quite a few "holes" in the plan, such as the lack of a declaration regarding the removal of caps on fruits and vegetables - something that will lower their prices quite immediately, as we were promised last summer.
The government had a great opportunity to do this - it is already announcing the removal of tariffs on a variety of consumer and food products.
Bennett and Lieberman announced: We will reduce taxes and reduce tariffs // Photo: GPO
But negotiations with farmers are stuck, and what has affected the decision-makers here is the same narrow coalition, because some of its members vehemently oppose the signing of the orders without the consent of the farmers, who in turn demand compensation to open the market to competition. More than in Canada, for example (and no, there is no competitive advantage in growing fruits and vegetables).
The challenge of centralization in the food industry
The plan also does not include the reduction of one of the main components that cause price increases - fuel.
Fuel prices in Israel are a cry for generations, and due to the high tax component they are among the highest in the world.
Is not it time to address this?
Of course, the government will have to part with billions of shekels in revenue a year, but that should not be a problem.
The state's tax revenues are growing year by year and only last year they passed not only the 2020 data, the year of the crisis, but also the data of 2019. Israel has recovered from the corona crisis impressively, and the government deficit is low compared to other developed countries.
So why not reduce taxation on fuel and make it easier for drivers?
The official explanation, by the way, is that the reduction in the tax on fuel is contrary to the government's carbon tax policy.
Along with the missing sections of the plan, one of the important steps in it, which will probably not receive many headlines, is the establishment of a committee to reduce centralization and increase competition in the food industry, which Minister Lieberman announced.
If the committee receives the necessary powers and acts decisively against the centralization in the industry, which is largely controlled by five large companies, it will be a real message to the consumer.
The government plan was quickly prepared by the Ministry of Finance.
The aim was to present a series of measures that have an immediate effect.
But economists disagree on whether it will be efficient enough and whose steps will really be felt in the Israeli consumer's pocket, or whether it will be spending billions at the expense of taxpayers, similar to "grants for every citizen."
Economics professor Avi Weiss, president of the Taub Center, says in an interview with Israel This Week that "it is clear that part of what is happening today is putting out fires, the media and social media are putting a lot of pressure. It is stressing politicians and giving its signals.
"The cost of living in Israel is high, expensive to live here compared to other countries. This is something that was created in the years 2008-2007 during a dramatic rise in prices around the world, only in Israel prices did not fall back. Why? Because of lack of competition. We are a small country, with few manufacturers. "The areas, so competition is limited. In addition, there is a lot of protection for local producers. Today it is less than it was then, it is part of the steps the government is taking and it must continue to increase competition. If competition can not come from within, it must come from outside."
"Target help to those in need"
Like the decision-makers, Prof. Weiss sees the need to expand imports to Israel by removing tariffs, as an opening for expanding competition.
"We need to open up markets to simpler import options, with fewer tariffs, this is the real solution to the cost of living, especially when it comes to food and toiletries. Many manufacturers abroad work with one exclusive distributor in the country, which is understandable, they want certification they can trust .
So one of the things that can help a lot is parallel imports. "
However, when it comes to subsidizing electricity tariffs, Weiss is skeptical.
"I am against such subsidies, it only puts even more distortions into the system, and if you want to help the weaker sections, you have to help through Social Security, through such and such subsidies directly to people, and not through discounting services like electricity. "Consumption of electricity is much poorer. That is, aid should be targeted at the most vulnerable populations."
Compared to Weiss, Prof. Avi Simhon - who served as chairman of the National Economic Council, former Prime Minister Netanyahu's economic adviser and a member of the Trachtenberg Committee - thinks that lowering the electricity tariff is one of the important steps in lowering the cost of living.
"Why are electricity and fuel prices so important? Because their price increases makes things more expensive. Bakery owners will say they have to pay more for the price of electricity and fuel so they have to charge more for the price of bread, taxi drivers will also say they need to raise fares Raise a price because the price of electricity has risen, so by lowering the electricity there is a way to reach a 'package deal'.
Through such a step, the government is basically saying, "I'm giving up tax - you will lower the prices."
Take care of the salary as well.
Prof. Simhon, Photo: Oren Ben Hakon
Beyond that, Prof. Simhon, who generally supports the plan, talks about the need to raise the minimum wage beyond the plan presented in November by the Minister of Finance and the public sector, which will be launched only in April.
He said, "Since raising the minimum wage four years ago, there has been inflation of seven to eight percent, which means that wages have eroded very much. "The minimum wage. I do not know of a better way to increase the participation rate in the ultra - Orthodox labor force in such a march."
Like Weiss, Simhon agrees that lowering tariffs and expanding competition in Israel is a "mast", and in the same breath recommends that the government toughen its positions vis-à-vis the largest food companies in the economy - manufacturers and importers.
"The government should make it clear to food importers that it will not be willing to tolerate any increase - neither now nor on Passover - since even before the expected increases, food importers are making good profits and such a move has no economic justification."
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