Treasury: VAT cut not fully passed on to consumers
The VAT cut in Israel last October was aimed at lowering consumer prices and increasing consumption.
Hopes that lowering VAT would result in lower prices and boost consumption have been confounded. A senior Ministry of Finance source told “Globes” that the drop in VAT from 18% to 17% at the beginning of October 2015 had been passed on to the consumers only partially.
What a surprise! You could have knocked me over with a feather… (And, I can offer you a new, lower price on that feather.)
The cut was from 18% to 17%. So, not a large reduction, and one more likely to show up in big ticket items like cars. With lower cost items, there should have been some changes, however.
It appears the Treasury was naive. It also appears that the Israeli economy does not have the consumer pressure that seems everywhere in the UK. If a VAT cut happened there, and prices did not fall, there would be a media storm about it, and a backlash against the greedy businesses. It doesn’t – or hasn’t – happened here. Even a modest 1% reduction would be carefully watched as to its effects. A definite cultural point of difference. Without that market or consumer pressure, it is tempting to consider whether price controls, and a more regulated consumer environment, would be worthwhile. Or, perhaps there needs to be a sharper VAT decrease.
Read the whole piece here.