An eight-month economic program to drastically reduce public and private spending, increase government revenues and raise foreign currency reserves, already at a dangerous low, took effect at midnight last night shortly after it was approved by the Cabinet meeting in special session.
The new program aimed at economic recovery, replaces the three-month wage-price freeze package instituted last November, which expired yesterday. Emmanuel Sharon, Director General of the Finance Ministry, said the new measures should save some $200 million in foreign currency by reducing purchases of imported goods and curtailing travel abroad. The government also expects to realize some $350-$400 million from various new taxes and levies, Sharon said.
KEY MEASURES OF THE PACKAGE
A key measure of the eight-month package is doubling the travel tax for Israelis going abroad from $100 to $200 per person and a 15 percent tax on airline tickets sold in Israel.
A three percent tax has been imposed on cars, privately owned boats and aircraft. The deposit surcharge on imported consumer goods has been raised from 40 to 60 percent but will be reduced by three percent a month beginning in March. The import ban on 55 luxury items, imposed last year, will be lifted.
The government expects to realize substantial savings by the drastic reduction of elimination of its price support subsidies on many basic goods and services. Postal rates have gone up by 100 percent and the cost of electricity was raised 25 percent for domestic consumers and 54 percent for industry. But the prices of many other basics will be held down.
Dollar or other foreign currency-linked bank accounts which can be withdrawn only in Shekels will pay interest to depositors if they remain in the bank for one year. Previously, interest was paid on accounts closed after three months. The measure is intended to absorb excess cash in circulation.
Sharon said the new measures and taxes would discourage Israelis from taking Dollars out of the country and help stem the Treasury’s fast dwindling foreign currency reserves.
The Bank of Israel announced last week that foreign currency reserves fell by 11 percent last month. They now stand at $2.3 billion, well below the $3 billion economists consider the minimum safe operating level.
REACTIONS TO THE PROGRAM
There was no immediate public reaction to the new measures. Shops and supermarkets reported no panic buying. But many economic commentators are criticizing the new economic program for its contents and for the way it was announced after many delays, leaks and denials of earlier announcements.
The most serious initial reaction came from the travel industry. Foreign airlines serving Israel and travel agents warned that the new taxes will result in serious losses for the local tourist industry. The airlines will reduce the frequency of their flights to and from Israel and will employ smaller aircraft.
Many of the increased service costs and new taxes require Knesset ratification, which is expected shortly. Sharon said that if the new $23 billion budget is implemented as it stands, he saw no reason for further economic measures this year. “There will be no new taxes beyond those announced yesterday,” he said.
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