Most of the budget items bore Prime Minister Ariel Sharon. In fact there are only two portfolios that he cares about with a passion: defense and agriculture. In agriculture, Sharon delves into all the minutest details, studying issues pertaining to land, foreign workers and water. He intervened in favor of the farmers on the resolutions of the Israel Land Administration in the matter of rezoning farmland for residential and industrial purposes; he opposed taxing farmers who employ foreign workers; and he has consistently countered any hike in the price charged farmers for water. The attorney general has cautioned Sharon to keep his nose out of the land and water business, because of apparent conflicts of interest.
In 2002 the cabinet approved a water reform, stating that the price of water charged to farmers is to be hiked gradually and put on a par with the price charged to local governments. Once farmers pay a realistic price, they will also start streamlining and saving water. This will reduce the consumption of fresh water for farming because farmers will no longer opt for water-intensive crops and instead choose ones that are suitable for a semi-desert area like Israel. But Sharon said: forget it.
Netanyahu did not incorporate the water reform in his economic recovery plan published in March this year. After all, why should he risk a confrontation with Sharon? Instead, he introduced an inferior proposal by which the price of water was to be increased by NIS 0.25 per cubic meter across the board. Sharon listened to all the cuts and blows that the plan imposes on salaried employees, the unemployed and pensioners without as much as batting an eyelash. But when Netanyahu started describing the water provision, Sharon grunted: "Agriculture must be maintained." Netanyahu got the hint, and eventually hiked the price of water by only NIS 0.12-0.13 across the board, instead of limiting the hike to farmers only.
The situation is so preposterous it's hard to believe. Households and industries pay a price that is much higher than pumping costs. They pay NIS 2.0 per cubic meter, while the average pumping cost is NIS 1.6 per cubic meter. At the same time, farmers are getting a giant subsidy, because they only pay NIS 1.03 per cubic meter. In other words: the industry and households are being taxed for the water used by farmers.
In this economic plan, Netanyahu and the Finance Ministry have broken all records of cowardice. While the treasury proposes to hike the price of water for households and industries, he makes no mention of upping the price paid by farmers. Namely, not only is there no reform, not only are prices not going to be equated for all sectors, not only is the price of water for farming not the only one hiked, but economic theory as a whole is being turned around, as the price for those who are already paying more than cost is being increased once again to double the price charged to farmers.
The treasury's budget chief, Uri Yogev, and his team always boast their professionalism and impartiality. How can they explain this unprofessionalism away? Their water plan contradicts everything we have learned in price theory about equating cost and price.
Apparently, keeping your job is more important.
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