Israel follows Norway’s Lead With a High Tax on its Massive Off-Shore Oil Find

Egalitarian Norway has been the exception to the resource-curse, because of its high taxes on oil wealth. Could Israel take the same approach?

A new tax plan proposed in Israel, following the tiny nation’s startlingly large oil and gas find in the Leviathan field off its Mediterranean coast, would roughly double current tax rates to as high as 62% of revenues from gas and oil drilling. Israel already has a gas tax that supports hybrids. Norway taxes oil revenue at 78%, while tax rates on oil in nations like Nigeria are more around the 30% range.

This Sunday, the Cabinet adopted the committee’s recommendations for the 62% tax in full. Prime Minister Netanyahu told the Globe that the revenue should be spent on “education, education and education, and one other thing – defense.”

“The resource is important to Israel’s economy and to Israel’s future,” Netanyahu said at a cabinet meeting. “We will cooperate with the investors in order to bring the gas to Israel quickly, and so the most important thing now is to move forward.”

Unsurprisingly the tax proposal was not well received by the oil companies involved, Israel’s Delek Group and its Texas-based partner Noble Energy, who made the find. US oil producers have long been pampered by oil-industry-written tax breaks. But Israel is not the US. At this point, it’s up to the Knesset, which would still have to approve the higher tax rate. Israel could well decide to follow Norway’s more socialist example.

Norway’s oil wealth has proved the exception to the resource-curse. With the discovery of extractive fossil energy, the pattern has been for nations and states to become less democratic and more corrupt, have less economic growth and more conflict, less innovation and more social inequality.

But Norway bucks that trend, by putting a tight control over fossil wealth, and spreading it through its very egalitarian society. With its discovery of North Sea oil, it moved to put a high tax rate on its massive off-shore oil and gas finds.

It taxes oil profits at 50%, on top of a regular business tax of 28%, so that oil companies pay 78% tax. Norway gets fully 30% of its revenues from its off-shore oil. Early on after the discovery of oil, the nation made the decision to prevent the kind of private profligacy and boom and bust cycles of the other oil-rich nations.

The Leviathan find is valued at between $45 billion and $90 billion, depending on how difficult and costly it turns out to be to extract. And there could be more in the region.

::Noble Energy

Image: Flikr user ina78

More on the Leviathan find:
Leviathan Gas Discovery Could be The Mother of All Resource Curses
Israel’s Leviathan Gas Find Will Have Widespread Repercussions for World Power
Israel’s Oil Tycoons Seek Higher Ground: New Challenge for Social Greens

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