Finance Minister Bezalel Smotrich and Prime Minister Benjamin Netanyahu at prime-time Wednesday night presented their plan to curb price increases in the Israeli economy, including the cost of electricity, water, fuel, and property taxes, as well as providing support to the economically disadvantaged.
The incoming government has to deal with whopping increases that were put in place before its term began, as well as serial increases of the interest rates by the Bank of Israel, increases that Smotrich had warned against during the election campaign, saying they were going to usher in a recession if not combined with other moves, most importantly a freeze on salary increases.
For the average Israeli consumer, who sees their supermarket bill going up by as much as 100 and even 200 shekels for each weekly purchase, these improvements are puny. For many Israelis, the steep increases in interest rates have added hundreds of shekels each month to their mortgage, sinking them in a desperate and often permanent dash to keep up with their monthly expenses.
One good thing that can be said about this initial move by Smotrich and Netanyahu is that they didn’t spend state funds to reach these rather minuscule price reductions. Let’s give Smotrich the benefit of the doubt, and hope that his annual budget will offer a more aggressive involvement in helping millions of Israelis finish each month without sinking deeper into debt.
Finance Minister Smotrich said: “As soon as I took up my position in the Finance Ministry, I have been dealing with the cost of living with utmost seriousness. I have been working day and night to formulate solutions. We have held a series of discussions in an effort to formulate a plan while keeping to the budgetary framework and without breaking the principles and rules and as a result fueling inflation. This is an immediate, emergency plan, and in the framework of the state budget – with God’s help – we will formulate major steps and a series of deep reforms.”
These are the main points of the plan to deal with price increases, ahead of the 2023 budget:
Electricity: the excise tax on coal will be reduced, allowing the Electricity Authority to reduce the increase in the cost of electricity to consumers by about NIS 60 annually per household ($17.5, close to a 15% reduction).
In the coming weeks, the government will review additional steps to reduce electricity costs further. The overall steps are expected to lead to an annual reduction of NIS 240 ($70) per household which, together with assistance for the economically disadvantaged. For small and mid-sized businesses, the planned steps should eliminate the increase in the price of electricity.
Fuel: the excise tax on fuel will be reduced by 10 agorot (2.9¢) by the end of 2023. This will cancel out the 9 agorot (2.6¢) increase in the price of gasoline that took effect on January 1.
One has to wonder why Minister Smotrich did not follow the reduction of excise taxes on coal with a freeze––full or partial––on fuel excise taxes, when motorists today are paying almost 7 shekels for a liter of gasoline ($8 per gallon). Last April, Finance Minister Avigdor Liberman cut the gasoline excise tax by half a shekel per liter for three months, and the result was very happy motorists. Don’t knock the impact of high national morale, Minister Smotrich.
Water: the increase in the price of water will be reduced by a similar amount as the reduction in the price of electricity. As a result, households will be spared increases of dozens of shekels per annum. The reduction will be reached by a. the reduced cost of electricity; and b. the national water company Mekorot will cancel its dividends for 2023. The savings will be applied to reducing the price of water.
Property taxes (Arnona): The automatic 1.37% increase in property taxes that took effect in January will be frozen, resulting in an average annual saving of NIS 70 ($21) per annum per household. In addition, automatic compensation mechanisms increasing households’ available income take effect this month.
Increased SSI payments: the National Insurance Institute’s support payments rose in January, as they do every January. Most payments were updated by 5.3%, in accordance with the Consumer Price Index; disability payments were updated by 9.8%.
Reduced SSI health coverage deductions: the collection brackets for national insurance and the health tax were updated this month by 2.5% in keeping with the increase in the average wage. All workers with a monthly income of over NIS 6,331 ($1,842.09) will benefit from reduced deductions for national insurance and the health tax of up to NIS 67 ($19.49) per month.
Reduced taxation: income tax brackets were updated this month in keeping with the Consumer Price Index. The value of credit points was also updated with the value of one point rising from NIS 223 to NIS 235. ($68.38).
Assistance in defraying the cost of living: the heating grant will be partially advanced; those eligible for the grant will receive now, instead of in October, a payment of approximately NIS 200 ($58.19) to assist them in dealing with the cost of living. The full heating grant of NIS 608 ($176.91) is paid out in October by the National Insurance Institute to around 300,000 elderly who are entitled to income support or disability payments.
