Israel declares "revolution" against gas guzzlers

By Allyn Fisher-Ilan

JERUSALEM (Reuters) - Israel declared a "green tax revolution" on Monday, proposing a new customs levy on large vehicles and a rebate for junking older gas-guzzling models.

Israeli Finance Minister Yuval Steinitz said he hoped his plan would persuade Israelis to switch to hybrid cars while earning the state up to 400 million shekels ($100 million) a year.

"We are introducing a green tax revolution," Steinitz said.

The plan would be implemented over the next decade and must first be approved by parliament's finance committee, which was likely to do so in the coming weeks, Environmental Affairs Minister Gilad Erdan told reporters, alongside Steinitz.

Israel's conflict with Palestinians has long overshadowed environmental concerns. But high levels of carbon emissions from a growing fleet of private and commercial vehicles has begun to eat into the country's gross domestic product, Erdan said.

He said up to 2 percent of Israel's GDP of 714 billion shekels in 2008 was lost to the costs of automobile pollution, including illness, damage to buildings and other infrastructure.

Due to the recession, Israel is expected to post a budget deficit of 6 percent of GDP in 2009.

The government's plan to cut state spending was rejected by labor unions so new ways to increase revenues are being sought to keep the deficit under control.

The government has already raised fuel taxes and increased the value added tax (VAT) to 16.5 percent from 15.5.

Critics said the new tax plan, which would raise the base tax on new vehicles from 75 percent to 92 percent, then offer discounts for cars with better gas emissions standards, may actually increase the prices of many smaller cars.

Steinitz said purchase taxes would be slashed to just 30 percent for hybrid vehicles, and that the bulk of most tax increases would be borne by purchasers of larger, luxury automobiles or SUVs.

Erdan said the policy also meant to educate the Israeli public "to get used to opting for consumer items that do less damage to the environment."

The government would also try to encourage Israelis to get rid of thousands of older vehicles clogging the roads -- about 70,000 are at about 20 years and older -- by paying 3,000 shekels ($750 shekels) apiece to junk them, Erdan said.

(Additional reporting by Steven Scheer; Editing by David Cowell)