It seems as though the commotion over cottage cheese prices has spread to every aspect of our lives. The public, and economists especially, are preoccupied with what things cost here versus their cost abroad. They needn't look very far. The price differentials exist almost everywhere. Salt is relatively inexpensive. Maybe. But that's not exactly encouraging news. One of the proposals out there for reducing prices is to lower the VAT (Value Added Tax) on food items. The dairy industry has released statistics proving that most countries in Europe and elsewhere collect a much lower VAT on food items, particularly dairy products, than does Israel. In Israel, dairy products are taxed at the VAT ceiling of 16 percent, while fruits and vegetables are not charged at all. The Ministry of Finance considers this to be a historical injustice. The argument that VAT should be reduced differentially for different products makes sense once you realize that the government is planning to reduce the VAT across the board next year. In other words, if a VAT reduction is already in the works, why not start implementing it right away for the most pressing items, i.e. dairy products- The problem is that our governmental system is unstable. It is a multi-party system representing publics that differ widely in their production and consumption habits. A reduction in the VAT for a specific product may trigger a wave of law suits by a particular sector of society. The Treasury prefers to deal with the entire problem in one fell swoop. If the VAT is reduced, it should be reduced across the board: from cottage cheese to apartments, from cars to public transportation. Thus, it would be better for those who support targeted VAT reduction for dairy products to re-route their energies to the truly pressing economic problem in Israel, the one that has really led us to huge price gaps vis-a-vis other countries in the world - that of monopolies. Instead of differential VAT, we deserve to solve the entire imbroglio by removing the many protective tariffs on food and other products. We must encourage competition while taking special care to protect our agriculture. Only efficient competition will bring prices down to a sane level. Competition will also help the public break their dependency on the same two or three supermarket brands and give them more to choose from. Rather than breaking our teeth over the VAT issue, we must reduce it across the board and turn our attention to the more pressing issue affecting the Israeli economy -- how do we foster competition?
