Tel Aviv was crowned this week as the most expensive city in the world. The truth is that this isn’t surprising. For many years we have been critical here of the government’s policy that is causing the excessively high cost of living in Israel in general and in Tel Aviv in particular.
We have written here about the high taxation rates, the property tax that goes up every year, the high customs duties imposed on imported foods: meat, chicken, fish, olive oil and fruits and vegetables, about the cartels in the dairy and egg sectors, about the power of the workers’ committees in the ports that delay the unloading of ships and thus make everything more expensive, the huge centralization in the food, insurance and banking markets, about the exclusive importers who raise prices, about the kashrut monopoly that makes everything more costly, about the Standards Institute that blocks competition in imports and about the excessive bureaucracy and regulation. And indeed, all this together leads to a low level of competition and high prices, the highest in the world.
'Biggest change since COVID started': What's Omicron and how to beat it. LISTEN
Let’s take butter as an example. A few days ago Finance Minister Avigdor Lieberman and Agriculture Minister Oded Forer signed an order removing butter from the list of products under price supervision. The agriculture industry and the dairy farmers objected. They always object. They are in favor of their own exclusive continued control over the market for milk and its products.
This is a definite cartel, unparalleled anywhere in the world except perhaps North Korea. The cartel is managed by the Dairy Board, which determines how much milk we will produce, who will produce it and at what price. Dairy farmers and other agriculture interests are on the board and therefore the result is that the price of raw milk in Israel is 25 percent higher than the price in Europe, which leads in turn to higher prices on all dairy products: soft cheeses, hard cheeses, cream, yogurt and butter. And in order to maintain the high, annoying prices, the state imposes high customs duties that prevent competition from imports.
As a result of the Bolshevik regulation, in 2019 we found ourselves in the midst of an acute butter shortage. However, despite the shortage, the dairy farmers opposed importing butter without customs duties. As far as they’re concerned, the shortage can continue and the public can suffer – the main aim is to prevent competition. This time, however, the agricultural lobby failed and in February 2020 the customs duty was canceled. The result was immediate: massive imports, elimination of the shortage, a greater variety of kinds of butter, improved quality and a drop in the price.
The order by the finance minister and the agriculture minister to deregulate the price is another stage in transforming the butter market into a genuine free market. The move will further reduce the price of butter and improve the quality and the variety. However, the case of butter is just a small step in the necessary process of lifting all the customs duties imposed on foods.
Not long ago, Lieberman and Forer promised to lower the duties on imports of fruits and vegetables and to eliminate the cartel in the egg sector, but this reform did not appear in the 2022 national budget due to pressure from the farmers. Will the move be put into effect this month, as the two ministers promised?
- What The Economist got wrong dubbing Tel Aviv world's most expensive city
- ‘Tel Aviv is heading toward an explosion,’ says the mayor of the world's most expensive city
- Lieberman's 'good' economics is bad for Israel
- Tel Aviv is over
In this context, it is astounding to find that Economy Minister Orna Barbivai is going in exactly the opposite direction. She wants to impose price supervision on the standard loaf of 80-percent whole-wheat bread. This is a move that will harm the consumer and benefit the producer. Whenever there is price supervision, the producer succeeds in convincing the “price supervisor” that it is necessary to “adjust prices upwards.” The correct solution is different: reducing customs duties on bread and bread products, as has been done in the case of butter. However, Barbivai is seeking populist headlines, just as in her awful plan to eliminate the most important consumer law: the price-labeling law.
Fortunately, Lieberman opposes revoking the price-labeling law and the treasury’s budget division opposes regulating the price of the 80-percent whole-wheat loaf. They know the correct answer to the high cost of living is increasing competition and reducing bureaucracy.