JERUSALEM (Jul. 1)
The Cabinet adopted an emergency economic program today, the immediate effects of which will be soaring prices for most consumer goods and reduced compensation for workers.
Opposition by Histadrut was instantaneous. The powerful trade union federation called a 24-hour general strike, starting tomorrow, that will virtually paralyze the country. Histadrut leaders charged that the new mea measures will create severe hardships for wage-earners but only minor inconvenience for the well-to-do.
The economic program is essentially the work of Finance Minister Yitzhak Modai. He had determined support from Premier Shimon Peres who kept his Cabinet in session all day yesterday and into the early hours of this morning until the program was adopted by a majority but far from unanimous vote. Peres hinted he would resign if it were not adopted.
Opposition to it cut across party lines. Seven Likud ministers voted against the program proposed by a Likud Finance Minister. The most outspoken opponent was Deputy Premier and Housing Minister David Levy, who charged that the new measures would only fuel inflation. But Deputy Premier and Foreign Minister Yitzhak Shamir, leader of Likud, voted for the program. Defense Minister Yitzhak Rabin, of the Labor Party, abstained on grounds that the defense budget could not sustain further cuts. But he refrained from voting against a Laborite Premier’s program. Peres had made it clear however that once adopted, the economic program must be supported publicly by every minister in the Labor-Likud unity government. He said he would expect anyone who could not go along to submit his resignation.
Peres admitted after the marathon Cabinet session that for the next three months at least, the public will bear a heavy economic burden. But he predicted there were good prospects that runaway inflation, long the scourge of the economy, will be beaten down. He urged the public, in effect, to bite the bullet for the short term. Without the harsh measures adopted, the economy would be sliding toward collapse and there would be no way out of the inflationary spiral, he said.
The government predicts that after a period of three months during which inflation may rise to record highs, the economy will stabilize and inflation will be brought down to low single digits. This, according to proponents of the plan, will set the stage for revived economic growth and expansion, easing the burden on wage-earners. Although an undisclosed number of government employes will have to be dismissed because of curtailed government spending, mass unemployment will be avoided, supporters of the plan said.
GOVERNMENT SPENDING TO BE DOWN $1.1 BILLION
The government claims its new measures will reduce government expenditures by $1.1 billion, considered a minimum to cool down inflation. But some economic experts argued today that the real cuts will amount to only $300-$400 million and that the improved government balance sheet will really reflect more and heavier taxation which will in turn refuel inflation.
Histadrut was enraged because the government will impose its economic austerity program by invoking emergency regulations that are a hold-over from the British Mandate regime. According to Histadrut Secretary General Yisrael Kessar, this is the first time in Israel’s history that these regulations were invoked. He blasted the Cabinet for agreeing to them without prior negotiations or consultations with Histadrut.
The major elements of the new economic program include an 18.8 percent devaluation of the Shekel. This, plus the “creeping devaluation” of the Shekel during the past week, adds up to a 30 percent. devaluation. The rate of the Shekel against the Dollar will be 1,500 to $1.
Massive cuts in government price support subsidies decreed by the new program sent the price of subsidized consumer goods soaring between 45-75 percent today. The price of bread was up 75 percent; cooking oil 60 percent; milk and dairy products 65 percent; frozen meat and poultry 45 percent; eggs 65 percent; and petrol by 27 percent.
The government also approved a general price rise of 17 percent on other items. The prices of about 100 non-subsidized products will rise between 25-30 percent.
All prices, wages and salaries will be frozen for a three month period. Wages will be cut by three percent in the public sector. Civil servants, with few exceptions, will not receive overtime pay and fringe benefits for the three month period.
Independently employed persons will have to increase their advance tax payments by 8.3 percent at the start of the tax year. But the value-added tax (VAT) will be lowered from 17 to 15 percent.
HISTADRUT SEES 30 PERCENT LOSS IN REAL WAGES
Histadrut contends that real wages will be eroded by about 30 percent. It has ordered a 24 hour shutdown of all economic activity, production and services for tomorrow. This means that effective at 6 a.m. local time, July 2, airports and sea ports will close down. Radio and television will be blacked out except for brief hourly news bulletins and the regular, twice daily newsreels.
The general strike will shut down bakeries. Bread will be in short supply even on Wednesday when the strike ends because baking will resume only at 6 a.m.
Supermarkets and other food chains and retail outlets will be closed for 24 hours. Hospitals and essential services will be maintained on an emergency Sabbath schedule.
Histadrut’s trades union department was still considering today whether to halt all public transportation or to allow buses to operate for a few hours in the morning.
OTHER LABOR STRIFE CONTINUES
Labor strife will continue beyond the general strike. The Histadrut teachers union to which elementary school teachers belong, gave statutory notice today of their intention to strike in protest against threatened dismissals under the new economic program. The school term ended yesterday but teachers are needed to help prepare for the new school year that begins after the summer vacation.
Meanwhile, workers who have been occupying the bankrupt Ata textile mills on Haifa Bay demonstrated angrily today outside the mill gates. They burned tires, blocking traffic on the Haifa-Acre highway. The Ministerial Economic Committee last week refused to ratify the proposed sale of the mills to a syndicate of American and Swiss investors. Ata, which was ordered shut down a month ago, appears doomed, and with it the nearly 2,000 jobs it provided.