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Why excise hike in petrol and diesel is good idea, and the complicated politics of Israel

In episode 416 of #CutTheClutter, Shekhar Gupta explains the reasons behind the excise hike in petrol and diesel, and delves into the recent political crisis in Israel.

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New Delhi: The government increased excise on petrol and diesel by Rs 2 and also increased the road and infrastructure cess by Re 1, and this elicited a big reaction from the Opposition.

This may be a wise move as the government has a large fiscal deficit and it isn’t possible to increase taxes elsewhere. This is a frictionless way of paying taxes as there are no inspectors, raids etc. This also hasn’t raised the prices of petrol and diesel. The government has offset the decrease in global oil prices by this excise tax increase.

The basic price of petrol, which the dealer gets, is Rs 18.30. On this, the government levies a cess of Rs 10 making it Rs 28.30. Additionally, the government imposes Rs 23 as excise and the dealer fee is Rs 3.50. And finally, the state government places a value-added tax (VAT) on the fuel. The only two places where the state can levy VAT is fuel and liquor.

Diesel is actually more expensive than petrol when it comes to the pump but since the government doesn’t want the diesel price to go up too much, the cess is less — it’s only Rs 4. After cess, diesel becomes Rs 31.80 compared to petrol, which is Rs 28.30. Excise on diesel is also a little less, when it should actually be more as its more polluting — Rs 18.18 is the excise and Rs 2.50 is the dealer commission.

After these taxes, the fuel prices are the same they were a month ago. If you go back to 16 February 2020, the pump price of petrol was Rs 33.10 including cess, and now it is Rs 28.30. Similarly, the pump price of diesel including cess was Rs 36.80 and today it’s Rs 31.80 — cheaper by Rs 5 as global crude prices have come down.

Why raising taxes is a good idea

There are two reasons why practical wisdom may suggest why raising these taxes is a good idea:

* Unless they raise such taxes, how will the government keep the fiscal deficit in check?

* Carbon should also never be sold cheap.

The price hasn’t changed, so the government has increased its benefit without putting a cost on consumers. If this is something the government can tax and give it to the poor, then that is a more virtuous idea than passing it to the middle class.

The Modi government spent Rs 11 lakh crore extra in good schemes for the poor, such as the toilet scheme or Ujwala scheme. Where did this money come from? If the government had not raised extra money, how would it pay for these? The year Modi government came to power, its excise collection was Rs 99,000 crore and within two years, it had risen to Rs 2,42,000 crore. It kept on rising and since then it has raised excise 11 times on fuel. As crude has been falling, the government has been consistently increasing excise to increase taxes.

Why isn’t the government paying the price politically? Modi knows that the fuel-buying classes are committed-voters. No matter what Modi does, the middle class keeps voting for him. It is as if they don’t have any choice. The middle class for BJP are like Muslims are for secular parties.

In Manmohan Singh’s second term, the oil price had gone up to $142 per barrel. The government kept subsidising oil, which made fiscal deficit and inflation skyrocket. When the UPA government tried to stop this, there was resentment from within the party and it failed to do so. So such a step can only be taken by a strong government like we have today.

Israel’s stalemate

Israel had its third election in 11 months. Israel’s Knesset (Parliament) comprises 120 seats and the majority mark is 61, but leading parties finish in the thirties. In Israel, it’s all about coalitions. Prime Minister Benjamin Netanyahu’s party, Lukid, got 36 seats and Benny Gantz, who was a general in the Army and the chief of staff, led his party to 33 seats. Gantz is not a left-winger, but he is not as far to the right as Netanyahu. He was the chief of staff when Israel made their push in Gaza in 2014 and also led the operation in Lebanon war in 2006

Interestingly, a combined party of Arabs called the Arabs Joint List has won 15 seats — the highest number of seats ever.

In episode 280 of ‘Cut the Clutter’, we explained the system of proportionality in Israel. Voting isn’t constituency-wise as it is in India. Arabs in Israel are Israeli Arabs, they are as Israeli as Indian Muslims are Indian. There is one difference, India is a secular country by the constitution, whereas Israel is a Zionist county by the constitution but they are equal citizens. It looks like they have come out to vote in large numbers. Their population is approximately 20-21 per cent of Israel, and they have got 15 out of 120 seats. It could be higher, but at least it’s the highest ever. Now, the Arabs have a say in government formation. The Arabs are aligning under a new coalition under Benny Gantz.

Yisrael Beytenu party leader Avigdor Liberman also joined the coalition to support Benny Gantz. After these, Gantz got 61 recommendations. But as soon as this coalition was forming, two of Gantz’s own party said they will not support a government in which the Arab Joint List is present. Another one had second thoughts later, so now both Gantz and Netanyahu have 58 recommendations.

Meanwhile, Israel is seeing a lot of cases of coronavirus. It has a population of just 87 lakh, but they already have more than 250 cases of coronavirus. The President has been asking for a national unity government in which both Gantz and Netanyahu take part so that the country can deal with the outbreak. Gantz says he will share power only if Arab parties are also allowed to take part. He isn’t a left-winger, but he understands the power of the Arab parties.

However, Netanyahu’s party couldn’t support this as some of the Arab parties are directly against their political ideologies. As we speak, the biggest Arab party has started to soften its stance on the unity government, so it is possible that in this crisis, you will see a government after all.

You may have seen Madhya Pradesh Chief Minister Kamal Nath saying he can’t hold a floor test due to the coronavirus. Netanyahu has also done something similar in Israel. He is facing corruption cases, and he will have a tough time in court if he doesn’t win the elections. As he doesn’t seem to be forming the government, he used the coronavirus to shut down the courts in his country.

You can watch the full episode of CTC here:

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