Despite Cut in VAT, Prices Won't Drop

The Agriculture Ministry announced yesterday it has decided to reduce the price of state regulated dairy products and eggs by 0.5 percent as a result of a cut in VAT, which drops from 17 percent to 16.5 percent as of today.

However, Israel Merchants' Association chair Avraham Birnbaum protested the decision. "We don't intend to reduce prices due to the 0.5 percent decrease in VAT. It's a marginal decrease that makes the process of reducing prices not economical," he stated.

Birnbaum said his group had proposed a sharp, one-time VAT cut of 2 percent to former finance minister Benjamin Netanyahu. "In return, we promised that merchants would reduce their prices by 5 percent," Birnbaum said. "We let the finance minister know that the average cost of putting on new price stickers on each product is 2 percent of the retail price."

Birnbaum claimed the 0.5 percentage point reduction is a step in the right direction, and would contribute to long-term price declines. "However, merchants and business owners won't put on new price tags because of a mere 0.5 percent decrease in VAT."

Birnbaum termed VAT "the most regressive tax in Israel," and called on acting Finance Minister Ehud Olmert to reduce the tax to a level acceptable elsewhere, arguing that VAT is, on average, 15 percent in the EU, and "there is no VAT in the U.S."

With the dairy sector price reduction, a carton of eggs will range from NIS 9.85 for the largest #1 size to NIS 6.45 for the smallest #5 size. A one-liter bag of 3 percent milk will be NIS 4.16, while a carton will cost NIS 5.21, and a bag of 1 percent milk will cost NIS 4.03, while a carton will cost NIS 4.98.

A 250-gram package of 9 percent cottage cheese will cost NIS 4.91, while the 5 percent variety will be NIS 4.81.

The Agriculture Ministry's deputy director general responsible for prices, Itzik Ben David, asked the public to pay attention to new prices in order to avoid being defrauded.