Israel Utility, Fuel Costs Rise To Cover Budget Shortfall

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Israelis will pay more for utilities and fuel in 2024 as the fiscal deficit has widened, chiefly due to the war against Hamas in the Gaza Strip.

Even before the war, Israel had seen a decline in state tax revenues and fees, Israeli financial site Globes reported. Tax revenue declined 9.3% in 2023 (to 412.2 billion shekels, or $112 billion) from 2022.

This was in part due to “weakness in corporate taxes and real estate taxes,” a trend that will continue into 2024, the news site reported.

One of the biggest increases is the price of gasoline. The cost of unleaded 95 octane gasoline rose 0.28 shekels per liter to 7.22 shekels, or $1.98 per liter ($7.50/U.S. gallon), the highest price in 18 months, Globes reported.

Electricity rates jumped on Feb. 1 by 2.6%. Water rates rose 0.7%, completing a rise of 5.9% over the last two years, Globes reported.

The cost of state health insurance will also go up, along with the arnona local property tax, which rose by 2.7% this year, after increasing by 1.4% in 2023.

Globes noted that a tax that would most significantly impact the economy and general public, a value-added tax increase from 17% to 18%, has been put off until next year. “For the state, the VAT increase will bring in NIS 7.5 billion [~$2 billion] according to the forecast,” it reported.

The war has seen an explosion in government spending. January saw an increase of 36% from January 2021. Subtracting war-related expenditures, spending would have risen by 14.6%, the Finance Ministry said.

Israel’s fiscal deficit, the gap between government revenues and spending, grew to 4.8% of GDP at the end of January.

Michael Sarel, a senior fellow at the Kohelet Policy Forum in Jerusalem and a former chief economist and director of state revenue, research and international affairs at the Finance Ministry, said the war makes it politically easier for the government to raise taxes.

But he describes the current deficit as “reasonable” and gives the government relatively good marks for its effort to curb the shortfall. “The government did try to reduce the deficit in 2024 and beyond. There will probably be additional measures,” Sarel said.

He noted that in the event of war with Hezbollah in Israel’s north, a further widening of the fiscal deficit to 6.6% is predicted.

Ideally, Sarel would like to see more government cost-cutting than expenditure. He points to a bloated government and a Cabinet with more ministers than can be professionally justified.

In terms of increasing tax revenue, Sarel’s preference is to abolish exemptions rather than raise tax rates. He points to four exemptions to the VAT he would like to see canceled, among them an exemption for foreign tourists staying at hotels.

Sarel said the government should also revisit an agreement signed with the labor movement before the war. “Now would be a good time to re-examine it and cancel some of the wage increases in the public sector set for the next few years. Circumstances have changed,” he said.

Sarel approves of hiking some taxes on fossil fuels, which would reduce pollution. JNS


1 COMMENT

  1. The Israeli government will raise the costs of utilities for Israel while the PA in Gaza will continue getting free electricity.

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