Friday, October 28, 2011

When in doubt, blame capitalism

Arkadi Butman

More than 60 billion shekels ($16.5 billion). That is the amount of money owed by the Israel Electric Corporation. That is approximately 20 percent of the annual state budget, some NIS 30,000 ($8,300) per Israeli household, or more than NIS 7,500 ($2,000) per citizen. Since this is a government company we're talking about, and the country's only electricity provider, it is clear that the state will eventually have to cover its debts. And that means that Israel will have to levy new taxes to cover these new expenses. Now the Electricity Authority [the government body that regulates the activities of the Israel Electric Corporation] has decided to raise electricity rates by 4.7%, prompting an outcry against the "robbery" and "theft" supposedly committed by the IEC. This criticism, of course, merely addresses the symptoms of the problem, while ignoring the cause: the irresponsible management of the IEC, which led it to rack up debts of NIS 60 billion in the first place.

Student union leader Itzik Shmuli [one of the leaders of the summer's social justice protests] responded thus: "The prime minister said he would lower prices, but the prices keep going up ... We are looking for solutions right now to these strange moves."

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Strange moves? How will the situation change if the price of electricity goes down? The IEC's debt would grow, and in order to cover a larger debt, the state would be forced to raise taxes. Lowering electricity rates, after all, is a fiction that hides the price of electricity among the many taxes the state levies on its citizens.

"The IEC must find a way to balance its desire for profits with the public interest," Shmueli continues. What profits is he talking about? The company has debts of NIS 60 billion!

Staf Shaffir, another one of the "leaders of the tent protest," called the move, "the latest reminder that Israeli citizens are not the doormats of the country's rich," adding that "electricity is only part of a broader situation of rising prices." Doormats for the rich? It seems Shafir has confused the IEC, which belongs to the government, and some imaginary electric companies owned by the "country's rich."

Ram Melamed, who heads the nonprofit group Yedid - The Association for Community Empowerment, even called on the Knesset to reinstitute price controls. "If they want to raise the rate, let them raise it for the army and industry, not for small consumers," he said. How will raising rates for the army help? Is this a new financial discovery? If so, I suggest that we immediately cancel all indirect taxes, and saddle the army with them instead? The excise tax on gasoline - only for army vehicles. Negotiations on dairy products - only for the IDF's logistical branch. Municipal taxes? Canceled. From now on, only IDF bases will pay municipal taxes. Let the army pay.

It's easy to understand why the proposal to shift the tax burden to the army is a distorted one. Such a move would increase the army's expenses, forcing the state to raise taxes in order to expand the defense budget. After all, the army's budget is financed by the taxpayer. How is taxing a taxpayer-supported body supposed to lower the cost of living?

The suggestion to reinstitute price controls is also disconnected from reality. Electricity prices are already under government supervision. Is the intention to go to the U.N. and demand that it oversee the price of oil, which is used to produce electricity? I doubt Qatar would cooperate.

So what, really, is the root of the problem? The IEC conduct that led to the NIS 60 billion debt should be examined. But where is the protest leaders' demand to end the inefficient government monopoly, paid for by public funds? Canceling the decision to raise electricity rates will not help out the middle class, it will only shift the payment from the electricity bill to the tax burden.

There is not a shred of capitalism in the electricity market - no free market nor any competition. On the contrary, this is an example of the failure of government management and the socialist system. Still, the fact that the free market is blamed for it is winning proof that at the heart of the tent protest stands a distorted ideology, in which all major problems are blamed on the free market, and to hell with the facts.

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