Increased Taxes to Go into Immediate Effect in Israel; Prices Rise

Prices went up in Israel today as a result of higher taxes on certain commodities and services which became effective this morning, necessitated by the higher budget facing the next fiscal year, beginning April 1.

Increases in taxes went into effect today on cigarettes and cosmetics, bus fares and household goods, sales and investments. The new budget, presented to the Knesset yesterday by Finance Minister Levi Eshkol, calls for total 1961-1962 expenditures of 1, 869, 000, 000 Israeli pounds ($1, 046, 550, 000). That means an increase of about 11 percent over the current budget. The new taxes will cover part of the nearly 200, 000, 000-pound ($112, 000, 000) increase in expenditures, Mr. Eshkol said.

The Finance Minister said his Ministry had to decide between two alternatives for increasing income: It could impose high tax increases on a small number of commodities; or raise the tax by small amounts on a large number of goods and services. The Ministry, he said, chose the latter course to avoid general price increases and a spiraling course of inflation.

The Finance Ministry estimates that the tax increases will stay within a range of 10 percent to 15 percent, and will not result in more than a one-point increase in the cost of living index. Thus, Mr. Eshkol pointed out, there will be no need to raise wages to bring earnings up to the new cost of living index.

Even after the tax increases have gone into full effect, Mr. Eshkol declared, the general public’s “disposable income” will still be 12 percent higher next year, by comparison with the present fiscal period. The Finance Minister warned the public, however, that, while exports are increasing, Israel’s trade deficit is still growing, since imports are rising in value at a faster rate than exports.