Government Accused of ‘election Economics’ for Cushioning Inflation with Subsidies

The government opted for a very modest rise in prices this month, laying it open to charges of “election economics” by the Labor opposition.

The prices of basic commodities were just raised by eight percent and the price of petrol by 10 percent. Government subsidies will cover the gap between those rises and the real cost increases which are 20 percent for basics and 30 percent for petrol.

This is no more than a continuation of the policies adopted in April immediately after the Knesset voted to hold early elections. In April the consumer price index rose by 20.6 percent but the price of basic commodities went up only 14 percent, thanks to subsidies. The pattem was repeated in May when the CPI was up 14.3 percent but the actual cost of basic items went up only nine percent.

Although it is generally agreed that the monthly price rises do not cover costs, some Likud ministers reportedly have urged the Treasury to refrain from any increases. Finance Minister Yigal Cohen-Orgad insisted however that some effort be made to narrow the gap between inflation and government subsidies. Premier Yitzhak Shamir supports him on that issue.

But price hikes will be kept to a minimum at least until after the elections. One of Likud’s main campaign themes is that individuals are doing well enough despite one of the highest inflation rates in the world. But there will be a day of reckoning, according to Labor MK Gad Yaacobi who would become Finance Minister in a Labor-led government.

Commenting on the government’s policy of keeping price rises below the inflation rate, he charged that “This decision indicates that election economics have been going on for quite some time and that it is not guided by economic logic and the needs of the economy but rather by the ballot needs of Likud.”

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