Labor, Management to Withhold Action on Tax Hikes Pending Clarification of the Situation

Labor and management expressed severe misgivings over the new sales and payroll taxes imposed by the government yesterday but both sectors decided today to withhold overt opposition until they could clarify the situation with Finance Minister Yehoshua Rabinowitz. The Histadrut Executive held a five-hour emergency meeting here this morning at which hardly a word was spoken in favor of the government’s economic measures, their timing and the way they were imposed, But the Executive agreed not to take any action pending a meeting with Rabinowitz.

A similar decision was taken at a lengthy meeting of the Employers Association of which the Israel Manufacturers Association is the main constituent. The Manufacturers Association, Histadrut and the government are partners in the Wage and Price Policy Institute which meets regularly to seek consensus on labor-management issues.

Leaders of the Manufacturers Association decried the new 7.5 percent payroll tax as clearly harmful, illogical and almost certain to increase unemployment. Some participants at the meeting suggested that the Association divorce itself from any bodies on which the government is represented to protest the new tax. Others proposed that factories hardest hit by the levy be shut down. But it was finally agreed to await a meeting with Rabinowitz in whom, as one industrialist put it, “we had high hopes to change the economic system and methods of action that have prevailed hitherto.”

The employers noted that payroll taxes, while not uncommon in some countries, are normally applied to non-productive or service sectors of the economy in order to encourage the productive or manufacturing sectors. In Israel, however, they said, the government, which is one of the largest employers, has exempted itself from the tax and has placed the burden squarely on the nation’s productive capacity. That, apparently, will be one of the arguments the employers intend to use to persuade Rabinowitz to reconsider the payroll tax. If they are unsuccessful, the employers say they will consider more concrete action.

CONSUMER REACTION MIXED

Meanwhile, prices on the Tel Aviv Stock Exchange fell sharply yesterday. In response to the new sales and payroll taxes announced by the government. The Exchange and all banks were closed today because of Purim.

Consumer reaction was mixed. New car show-rooms were deserted and no car sales were made yesterday. There was a rush on electrical appliances, however, as dealers said they would retain the old prices as long as present stocks last despite the new 7.5 percent sales tax, Mean while, housing contractors said the new tax package would increase the price of flats by about 10 percent, leading to a further slowdown of the already sluggish private housing market.