Netanyahu under pressure over rising fuel prices

Reuters , Wednesday 9 Feb 2011

Netanyahu prepared on Wednesday a package of economic relief measures aimed at quelling public anger fuelled by record-high gasoline prices.

Israeli Prime Minister Benjamin Netanyahu, who pioneered free market and structural reforms in Israel while finance minister from 2003 to 2005, has been under heavy pressure from political allies to lower levies that have boosted the cost of petrol and other basic goods.

Amid consultations with economic advisers and the governor of the central bank, Netanyahu called a news conference for Thursday to announce what his office said would be new "economic measures".

He faces a delicate balancing act: how to appease the public by lowering the price of heavily-taxed fuel while maintaining Israel's internationally-praised fiscal discipline reflected in a low budget deficit of 3.7 percent of GDP in 2010.

Netanyahu's government and the Bank of Israel have won praise for keeping unemployment, currently at a rate of 6.6 percent, relatively low and for continued economic growth -- 4.5 percent last year and projected to top 4 percent in 2011.

But members of his Likud party have warned Netanyahu -- whose popularity has stayed strong while navigating complicated peace efforts with the Palestinians -- of future ballot box consequences if he fails to offer price relief.

"In the past few days I have met (Netanyahu) to formulate steps to relieve the pressure on Israel's poor without breaching the budget or the deficit (target), because that would set us back to mass unemployment and recession like we have seen in the United States and Europe," Finance Minister Yuval Steinitz said on Israel Radio.
His call to adhere to the 2011 budget, approved just last month, was echoed by Bank of Israel Governor Stanley Fischer.

Steinitz was speaking from a hospital, where he was treated overnight for what he said was a bout of flu. The radio said he was suffering from exhaustion -- the result of efforts to avert a national general strike over the high prices.

A tax surcharge imposed last month and high global oil prices have brought the price of a litre of petrol in Israel to an all-time high of 7.26 shekels ($1.97).

That works out to $7.52 a gallon, more than double the price in the United States but roughly equivalent to what motorists pay in many European countries. Taxes account for some 56 percent of the price of petrol in Israel.

The price of bread, which is partly controlled by the government, has risen by 3.3 percent in response to higher raw material costs.

Israel's main labour union, the Histadrut, has said it would decide on Thursday whether to declare a national work dispute, a first step toward a general strike later this month.

"A wide civil and social front has been formed to tell the prime minister and finance minister -- we've had enough," Histadrut chairman Ofer Eini said in a statement, appealing to Netanyahu and Steinitz to ease a tax "chokehold" on the public.

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