Daily Israel Report

Soaring Gas Prices Fuel Government Coffers, Cut Deficit

Israel ended 2010 with tinier deficit than predicted, partly due to soaring gas taxes, which have led to street protests and a Knesset debate.
By Tzvi Ben Gedalyahu
First Publish: 1/26/2011, 6:58 AM / Last Update: 1/26/2011, 8:41 AM

Flash 90

The Finance Ministry of Israel's annual budget and revenue report, presented Tuesday, showed that Israel ended 2010 with a much smaller deficit than expected, partly due to soaring gasoline taxes, which have led to street protests and a Knesset debate.

The deficit was only 3.73 percent of the Gross Domestic Product (GDP), far less than the forecast 5.5 percent. The explanation for the deficit being lower than the original budget plan "comes largely from the revenue side,” the Finance Ministry said.

Total revenue was a whopping 11.3 billion shekels ($3.3 billion) higher than in the budget plan. Lower interest payments and higher than forecast GDP also contributed to the rosy picture for the Finance Ministry coffers.

“According to our estimates, total tax revenues amounted to 195.4 billion shekels, 12.3 shekels billion more than…planned in the original budget and a nominal increase of 10 percent compared to the previous year,” the report said.

The figures were reported as Israelis have taken to the streets to protest soaring gasoline prices, fueled largely by higher excise taxes. In addition, every time the price of crude oil rises, the resulting increase at the pump gives the government a windfall because the taxes rise proportionately.

The rising spiral in gasoline prices will continue next month, with a two percent hike planned following January’s record high.

Dozens of cars, whose drivers represent taxi drivers and handicapped people, blocked roads in Tel Aviv earlier this week. A Knesset committee is to meet Wednesday to discuss the record high prices. The price of gasoline in Israel is one of the highest in the world, nearly $8 a gallon.

The Infrastructures Ministry has justified the hike because of the rise in crude oil, but in fact the price of crude has risen less than 20 percent in the past 12 months and is almost half the price it was during the bubble of two years ago. Nevertheless, the prices at the pump did not come down proportionately with the collapse of the bubble, but have risen disproportionately, partly because of higher excise taxes.

The Finance Ministry has admitted that it raised taxes to reduce the deficit and added that the increase had an "environmental value” because it would force Israelis to rely more on public transportation. However, since bus and taxi fares also have soared because of the tax hikes,  this lame attempt to "educate" Israelis falls on deaf ears.