The Solution to Israel's Traffic Problem: Tax Those Who Drive at Peak Hours

Prof. Trajtenberg is proposing to replace vehicle taxes with levies based on where and when you’re on the road, and with how many passengers you're carrying

FILE Photo: A traffic jam in Jerusalem
Olivier Fitoussi

Prof. Manuel Trajtenberg has some good news and some bad news for the ever-suffering Israeli driver.

The good news is that he is proposing that the government get rid of all taxes and fees it now imposes on buying a new car, gasoline and auto parts. The result would be a sharp cut in the cost of buying and maintaining a vehicle.

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But here’s the bad news: Trajtenberg and his team at the Technion’s Samuel Neaman Institute – a public policy think tank -- want to replace that with a single tax levied every time you drive. It wouldn’t be a single rate – drivers making trips in densely populated areas during peak traffic hours or driving without any passengers would pay the most.

The idea of the plan, which has been presented to the Finance Ministry and discussed in several public forums over the last few months, is to address Israel’s massive and worsening traffic problem.

Driving a car bargain

The Bank of Israel estimates that traffic jams and other transportation-related delays cost the economy 35 billion shekels ($9.75 billion at current exchange rates) in 2016, but building more roads and highway interchanges will never offer more than temporary relief.

The treasury estimates that packed roads and the time lost to people trying to get to work and other activities amounts to 25 billion shekels annually.

Others think that’s too low an estimate. Prof. Omer Moav put the cost in a study last year at 52 billion annually and thinks it will reach 100 billion by 2040 – and that’s only the lost time, not the health and environmental costs arising from emissions or the planning constraints.

As Trajtenberg and his colleague see it, the only solution is to discourage driving by making it more costly.

“Just like the debate around climate change, more and more people are saying that climates will continue to deteriorate unless you impose a tax on carbon emissions,” said Trajtenberg.

“There’s nothing else to do—if people realize that the costs are distorted” they may change their driving habits, he said. “What has changed is that today technology enables us not only to impose proper costs but also to easily enable shared rides.”

Trajtenberg’s opinions carry a lot of weight – he was previously an economic adviser to the prime minister and headed the government committee recommending reforms in the wake of the 2011 social-justice protests. Until last year, he was a lawmaker with the Zionist Union.

His plan would require a lot of daring from the government and drivers’ cooperation.

Apart from overhauling the tax system, it would involve deploying a sophisticated network of sensors on cars to collect data in real time to affect people’s choices, in particular employees who will have to pay extra to travel during normal commuting hours in urban areas.

But the fact remains no one else has a better solution for the short to medium terms of three to five years.

“It’s clear to everyone that the problem of transportation in all metropolitan areas worldwide will only grow worse and there’s no way to solve it apart from pinpointed solutions here and there, unless we change people’s behavior,” said Trajtenberg.

Reducing the number of cars on the road at peak hours even by 20% would enable other drivers to travel much faster. To accomplish that, the Trajtenberg plan aims to encourage ride sharing.

During commuting hours, most cars have only one passenger - the driver. The average number of people per car is just 1.2. (ironically, off-peak, the number rises to 1.5). Raising the peak hour average to 1.3-1.4, the study posits, could reduce the number of cars enough to raise average speeds by 50%. Raising the average to 1.5 would be the ideal goal, the study says.

As to the tax component, the idea is to redirect taxes so that those who drive at undesirable times and in undesirable places from a traffic standpoint will pay more than those who don’t.

In 2016, the government collected 41.4 billion shekels in vehicle-related taxes, including on gasoline, the purchase tax on new cars, value-added tax and license fees. About 70% of this is collected on private cars.

That saddled the average owner with taxes of 11,100 shekels a year – equal to about one month’s average salary – but for the most part doesn’t affect his or her driving habits.

Under Trajtenberg’s proposal, taxes would be charges based on actual driving – dependent on the length of the trip. But instead of being based on a fixed kilometer rate, it would vary by the route the vehicle takes, the time of the day, number of people in the car and level of emissions.

Thus a lone driver using the Ayalon Highway in Tel Aviv on a weekday morning would be hit with a big tax bill. A trip at night on a lonely Negev road with a hybrid car crammed with riders would pay the least. The first driver can cut his taxes by taking passengers.

Based on the 30 billion the state collected in taxes on private cars in 2016 and 44 billion kilometers Israelis drove that year, the effective tax rate is 68 agorot a kilometer. Trajtenberg says that number should be the basis for the new tax regime.

To monitor drivers, cars would have to have a chip with a GPS component as sensors to count the number of riders. The data would be relayed to the authorities by the driver’s cellphone. To protect their privacy, the details would remain in the drivers’ possession, with the authorities only getting a shekel amount owed.