The Cabinet will hold a special meeting Sept. 17 to discuss Israel’s worsening economic situation. The discussion will range over a wide variety of topics. First, is the budget, which, despite demands that it be cut to curb inflation, may have to be increased by IL 3 billion because of wage increases, considerable supplements to the police budget for antiterrorism activities and the growing deficits in municipal budgets. The government’s action on the problem in the localities has a special political impact since municipal elections are being held in November.
Commerce and Industry Minister Yigal Hurwitz resigned last month over his demand that the budget be cut by IL 3 billion. He rescinded his resignation when he was promised that the Knesset Finance Committee would review his demand. He says he still has not lost hope that the budget will be cut despite the sign that there will be increases, not cuts, in the budget.
PROBLEMS TO BE TACKLED
The Cabinet will also discuss the worsening inflation. The Finance Ministry originally projected a 30 percent increase in inflation which it has corrected to an estimate now of 37 percent. The Bank of Israel projects the rate at 40 percent.
Another problem is the growing consumption in the country and the fact that more is being bought from abroad than exported, which has caused an increase of $300 million in Israel’s balance of trade deficit. The government also expects to pay off by January its public index-linked bonds estimated at IL 8 billion. Most of the money is expected to be spent by the public, adding to inflation.
The Cabinet will also discuss the expected Histadrut demand that the freeze on cuts on government subsidies for essential food items be extended six months. The Finance Ministry wants to cut subsidies after the High Holy Days.
Wage demands exceeding the 15 percent ceiling set by the government are expected to be made by the teachers, tax services employees, engineer and physicians. If any of these demands are approved, inflation will increase further. In addition, the Ministry of Social Betterment is proposing several new laws, including one setting a minimum wage, which will involve further increase in expenses. Despite economic objections to the bills, they are likely to be approved for political reasons.
MEASURE TO COPE WITH SITUATION
The Finance Ministry is considering several measures to slow down the deterioration in the economy which it will propose at the Sept. 17 meeting. One will be to encourage holders of the government bonds to keep them under improved terms. A second proposal is to increase the interest rate to cut down on credit. The rate for a bank mortgage is now 42 percent annually.
The Ministry will also propose increasing fees for government services such as driver’s license and auto registration. The government policy is opposed to any increase in the income tax which has a top level now of 60 percent but it might increase the value added tax (VAT) which is now 12 percent.
Another proposal may be to increase the price of such products and services as fuel, electricity and water. A gallon of gasoline now costs $1.50. The Finance Ministry may also urge cutting the subsidies on food items despite the objections of the Histadrut.
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