Two new tax measures aimed at curbing runaway inflation and easing Israel’s severely negative trade balance, face bitter opposition in the Knesset and from major business groups. A number of Likud ministers are also strongly opposed.
The controversial measures, recommended yesterday by the Ministerial Economic Committee, include an 0.3 percent tax on all withdrawals from current bank accounts and a compulsory deposit by importers of 15 percent of the value of imported goods. The latter, signed yesterday by Minister of Commerce and Industry Gideon Patt, applies to 311 imported items.
The money must be deposited with the Treasury for one year, in local currency. It will earn no interest and will not be linked to the price index. With inflation currently running at an annual rate of 150 percent, the deposits will be worth only 40 percent of their original value when they are returned. This is equivalent to a nine percent tax on imports, effective immediately.
The tax on bank withdrawals has raised the most furor. The Finance Ministry expects to realize some 10 billion Shekels, to pay for Israel’s continued presence in Lebanon. Many Knesset members of Likud’s Liberal Party wing, including Energy Minister Yitzhak Modai, oppose it. They have demanded that Finance Minister Yoram Aridor refrain from asking the Cabinet to endorse it, for the time being. The Liberals want Aridor to consult with them before taking any action.
LABOR OPPOSES MEASURE
The Labor Alignment announced it would vote against the measure. Various public bodies such as the chambers of commerce and the Civil Servants Association are also opposed. The presidium of the chambers of commerce met in emergency session today. Zvi Amit, director of the association of chambers of commerce denounced the withdrawal tax as a “murderous” measure that could cause the collapse of those branches of the economy which operate on narrow profit margins.
Other critics of the measure said the tax would encourage people to horde cash and to demand payment in cash instead of checks. A spokesman for the Civil Servants Association said its members would demand that their salaries be paid in cash to circumvent the new measure.
ARIDOR SEES IT AS RECTIFYING ‘DEVIATIONS’
Ezra Sadan, Director General of the Treasury contended that the tax amounted to relatively small sums and predicted that it would not affect the use of bank accounts. Aridor said yesterday that the new measures do not constitute a departure from his policy of “mild” economic measures but were rather intended to “rectify certain deviations from that policy.” He promised that no further taxes would be imposed in the near future and there would be no drastic devaluation of the Shekel.
Aridor explained that the deposit tax would replace the compulsory war tax imposed when Israel invaded Lebanon a year ago. That tax is ending and will not be renewed. Aridor has come under heavy attack recently from Likud colleagues as well as opposition politicians for the rapidly deteriorating economy. Israel’s trade deficit widened by 35 percent during the first four months of this year, to $1.06 billion. Imports amounted to $2.69 billion and exports to $1.63 billion. The trade gap for all of last year was $4.7 billion.
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