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Government Relying on New Austerity Plan to Stabilize Israel’s Economy

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The government has prepared a new plan to stabilize the shaky Israeli economy which calls for belt tightening by Israelis and less spending by the government. The plan’s effectiveness will depend to a large extent on cooperation between the Finance Ministry and Histadrut. Finance Minister Yehoshua Rabinowitz has said that he regards this cooperation as essential for the success of any program designed to improve the nation’s economy.

Although no date has been set for implementation of the new regulations. Israelis have gone on a buying spree expecting prices to increase soon especially for automobiles and electrical appliances. The proposed plan provides for an IL 1.5 billion cut in the development budget. There will be no new public buildings built, including universities, schools and office buildings. Luxury apartments will be heavily taxed.

Although a 20 percent cost of living increase is to be paid workers in the beginning of July, the government, attempting to halt inflation, will try to neutralize its effect either by agreement with Histadrut to reduce the COL increase, tax it, or impose a new compulsory loan at the rate of 5 percent. The new plan will be Rabinowitz’s first test as Finance Minister. Observers see it as the government’s last chance to control the economy before a disaster. The new economic plan rules out at least for the time being any devaluation of the pound.

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