Fischer: Market concentration cause of high prices
By NADAV SHEMER - JPOST website
08/01/2011 12:15
Bank of Israel Governor Stanley Fischer admitted Monday that nationwide protests over the high cost of living took him by surprise, and said that the problem was mainly a result of market concentration.
Speaking at a press conference at his Jerusalem office, Fischer called for the establishment of a committee to investigate the disparity in prices between Israel and the rest of the world, saying, “I assume the problem is a lack of competition.”
He added, “We pay too much for vehicles because of the import tax, among other things. My impression is that the prices in Israel are very high.”
Fischer said there were four main problems that had to be dealt with: high home prices, the cost of living, tax policy, and what he termed the government’s ability to provide services the public needs in a manner befitting the changing reality.
The press conference marked the first time Fischer has spoken out publicly on the cost of living since demonstrators began erecting tents in major cities more than two weeks ago to protest the rising price of housing.
Calling the protests “very dramatic”, Fischer said: “It was surprising because according to all the economic data the market is very strong, with a low unemployment rate. But you can’t not be impressed by what is happening in the tents and by the demonstration of 150,000 people [on Saturday night].”
Fischer spoke in depth about the housing crisis, rejecting criticism that the blame for soaring prices could be pinned on his dramatic lowering of the benchmark interest rate from September 2008.
“Had we not lowered the interest rate and just kept it at 4.25 percent, we wouldn’t have a housing problem, but instead we would have an unemployment problem similar to that of the USA and Europe, where it has reached almost 10 percent,” he said. “In addition, had the interest rate been higher there would not have been more homes but rather less.”
The central bank governor welcomed Prime Minister Binyamin Netanyahu’s initiative to review taxation and recommended that he first examine the increase in indirect taxes compared with the drop in direct taxes. But he also warned against reacting too quickly to protesters, saying “there are no magic solutions to the problems.”
He also backed the prime minister’s National Housing Committees bill, which is intended to speed up housing construction by sending projects marked for expedited construction to subcommittees, and called for supervision teams to be established, as was done in the 1980s to deal with hyper-inflation.
Turning to the protesters themselves, Fischer said they were the people who contributed to the state and its economic success, but added that their demands were political and that if they want to impact policy they must move beyond demonstrations and into the political arena.
“They must enter politics,” he said. “Work in the Knesset is difficult, convincing people is a more difficult job than determining the interest rate. [But] if the demonstrators don’t enter politics, it will be a loss for them and for us all.”