The Cabinet was locked in bitter wrangling today over Finance Minister Simcha Ehrlich’s economic plans for fiscal 1979-80, the essence of which is a three percent across-the-board cut in the national budget to combat inflation. Some ministers claim the cuts are too drastic, at least as they pertain to their ministries, while others insist they do not go far enough.
Strong opposition has developed outside the government, from Arnon Gafni, Governor of the Bank of Israel on one hand and, on the other, from Histadrut Secretary General Yeruham Meshel who dismissed the plan as unworkable and “nothing new.”
But Ehrlich ardently defended his proposals, at a press conference after today’s Cabinet session. He said it would distribute the burdens of austerity equally between the public and the government and that its effects would be felt only gradually.
The Cabinet will meet in special session Thursday for an economic discussion at which the fate of Ehrlich’s plan may be decided. The position of Premier Menachem Begin is not known but is expected to have considerable influence over the outcome. The consensus here is that the plan will be adopted despite serious reservations held by many ministers.
TWO-PRONGED ATTACK ON INFLATION
The Ehrlich plan calls for a two-pronged attack on inflation, one by severely reducing government expenditures and the other by tightening tax collection. One of the most controversial points is the proposed IL 2-3 billion cut in government subsidies for basic products and services which could result in a 100 percent increase in the price index. The property tax on business, plots, agricultural land and cars would be doubled, Banks would be required to report all cash transactions to the Treasury involving more than IL 50,000.
W###e earners would have to report any additional income. The government and other public bodies would not enter business transactions with anyone who does not have a clean record with the income tax authorities. Government officials would be authorized to close down the businesses of any persons convicted of tax violations and on annual list of violators would be published.
The value added tax (VAT) on banks and insurance companies would be raised from nine to 12 percent, Housing mortgages would be linked to the cost-of-living index. That proposal was denounced by Meshel who said it was “bad news for people who hope to purchase their own apartments. They will never get out of debt.”
The government also plans to freeze hiring and freeze most public construction. The main goal of Ehrlich’s plan is to reduce inflation by 10 percent. The Finance Minister argues that unless these measures are implemented, inflation will reach 50 percent in the new fiscal year.
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