Conflict of Economic Policy

A series of proposals by Finance Minister Yitzhak Modai to impose a one-time tax on cars, businesses and factories, as well as taxes on children allowances and luxury flats ran into a snag today as members of the Ministerial Economic Committee refused to approve them.

On the surface, it appeared that some of the ministers were angry with Modai for not providing them with sufficient and accurate information prior to the meeting. At least this was the contention of Gad Yaacobi, acting chairman of the committee, and Deputy Premier David Levy who was especially vociferous in his criticism of Modai.

Below the surface, however, the conflict between Modai and Levy was not relegated to purely economic matters nor informational inadequacies but rather a carefully planned political development on the part of Levy, according to political pundits. Levy, a member of Likud’s Herut wing, is preparing to present himself as a champion of labor’s rights in the April, 1985 Histadrut elections.

He has, therefore, been pounding away at Modai’s economic proposals and has charged that the unity government’s economic measures taken so far will bear down hardest on the wage earners. Levy’s aides have been saying publicly that Modai, who is a member of Likud’s Liberal wing, is “shooting aimlessly in all directions” without really having an overall policy of solving the nation’s economic crisis. Levy has resigned from the special ministerial committee negotiating economic matters with Histadrut.

POSSIBILITY OF HERUT, LIBERAL SPLIT

The conflict between Levy and Modai also points to the ever-growing possibility of a split between Herut and the Liberals, which may leave the Liberals in the unity government and Herut in the opposition. Science and Technology Minister Gideon Patt (Liberal) warned that the differences between the Liberals and Herut may lead to a split that will have the Liberals staying in the government and cutting their ties with Herut. “We have not forgotten the way Herut treated us on the eve of the elections,” Patt said. This was a reference to the reduction of the number of Liberals on the Likud ticket.

AGREEMENT REACHED ON EDUCATION FEE

While decisions on Modai’s tax proposals were deferred today, an agreement was reached between Premier Shimon Peres and Education Minister Yitzhak Navon on an education fee. The principle of the agreement was an across-the-board fee for kindergarten to high school pupils. For one child in school, a family will pay 4,000 Shekels; for two children or more, parents will pay 6,000 Shekels. It was also agreed that free high school education will not be abolished.

The proposed taxes and the agreement on the education fee followed last night’s decision to ban the imports of 50 “luxury” items and the elimination of travel allowances. (See separate story.)

There was widespread public debate today about the wisdom behind the latest economic measures. Few economists justified the steps — mainly from the psychological point of view — to put an end to “showoff purchases.” Most economists argued that the limitations on imports were exactly the opposite of what needed to be done.

They charged that the limitations would speed up inflated prices of domestically-produced items, that it might expose Israel to counter-measures against its own exports, and that taxes imposed on imported luxury items would be lost.

A major problem arising from the limitation on imports is the conflict between this measure and Israel’s trade agreements with the European Economic Community and the proposed free trade zone with the United States. Although Israeli officials conceded that the new economic measure is not in the spirit of these agreements, they said they intend to persuade overseas trading partners that there is an emergency situation in Israel which should be taken into account.

Quite surprisingly, the ban on imported luxury items has not yet created a last minute buying spree. Shops in Tel Aviv did not experience any increase in buying. Supermarkets and department store managers reported normal buying, with only a slight increase in the sales of imported cosmetics and alcoholic beverages.

One place that was busier than usual was the black market on Lillienblum Street in Tel Aviv where Shekels were being sold at 443 to the U.S. Dollar, compared to the official exchange rate of 412.74 Shekels to the Dollar. The flurry of black market activity this morning was triggered by news reports that Attorney General Yitzhak Zamir was in favor of cracking down on the black market and ending the free trading in “greens.”