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Israel Gov’t. Adopts Tough New Anti-inflation Program

The government adopted a tough new economic program today intended to extract up to IL 4 billion from the consumer market as a means of halting galloping inflation. The plan, adopted after a five-hour Cabinet meeting that ended just before dawn today, calls for new taxes, new compulsory loans, cuts in the cost-of-living allowances and a temporary moratorium on government spending on new building projects. It also provides incentives for export industries and puts a damper on imports by increasing tariffs.

Finance Minister Yehoshua Rabinowitz explained the new measures in a radio address last night. He said that while Israel’s economy had returned to normal “quite rapidly” after the Yom Kippur War, proving its intrinsic strength, “we have returned too fast to a regular life style but conditions do not allow it.” He referred to the immense defense needs which, he said “dwarfed” the pre-war needs. “We have to make sure that the State has the money which is needed for building the armed forces along with essential economic activities,” Rabinowitz said.

The government’s new plan received a generally favorable reception from economists and industrialists although reservations were expressed over whether it will work as intended. The Histadrut Central Committee met today to consider the government’s proposal for waiving half of the 20 percent cost-of-living allowance payable to wage earners beginning with this month’s salaries. The atmosphere in Histadrut is not favorable to the idea.

Property owners will be hit by a five percent levy on all property valued over IL 3000. Residential apartments are exempted. The property tax, subject to Knesset approval, is a one-time levy and is payable in six monthly installments. Economic experts estimated that higher tariffs will push up the prices of imported cars, electrical appliances, clothing, jewelry, cameras and similar consumer items three to five percent. They will also affect Israel-made goods using imported parts.

The government promised, however, that the prices of 14 basic commodities including oil will not go up until the beginning of next year and that any price rises abroad will be absorbed by the government in the form of increased subsidies. Exporters will be encouraged by a higher exchange rate. They will receive IL 5.88 instead of IL 5.46 for every dollar earned, an increase of 42 agorot.

The war loan imposed on wage earners since last Oct. will be raised from a minimum of seven percent to 10 percent of monthly income which will mean less net income for Israeli workers, Most ministries will be expected to shave their budgets and the halt in public building is expected to save up to IL 500 million. Prof. Michael Bruno, a Hebrew University economist, called the plan a “right step in the right direction.” Some businessmen expressed fear of a business slowdown. But Avraham Shavit, acting chairman of the Israel Manufacturers Association, summed up the industrialists’ view “It is good that there is a plan. Even a bad plan is better than no plan,” he said.

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