New Economic Plan Under Severe Attack

The new economic plan which Finance Minister Moshe Nissim intends to present to the Cabinet Sunday, faced a massive revolt this week. Labor Party Ministers, gathered at the home of Vice Premier Shimon Peres in the early hours of Thursday, stated flatly they would “not support” the plan “as it is presently formulated.”

It was unanimously rejected by the Histadrut Executive Wednesday where both Labor and Likud members urged that it be “re-modeled” so that “the economic burdens will be equally shared.” The threat of a general strike was voiced if the government attempted to implement the plan without negotiating the disputed features with the labor federation.

It calls for an overhaul of the tax system and capital market and a reduction of the national budget by a half billion Shekels.

The plan has been attacked by the Manufacturers Association representing the country’s industrialists and employers, on grounds that it fails to sufficiently stimulate production and exports.

RABIN IS THE MOST OUTSPOKEN CRITIC

Defense Minister Yitzhak Rabin has been the most outspoken critic. He told the pre-dawn meeting at Peres’ home that he would “vote against it, categorically.” He said the reductions in the defense budget called for by the plan would “ruin the army,” force abandonment of the Lavi jet fighterplane project “and more besides.”

Opposition to the plan has been based on leaks to the media of its main features. The Finance Ministry published it officially only on Wednesday.

Nissim said on a television interview that he would seek Cabinet approval this Sunday. But it seemed unlikely he would press for a decision. He reportedly does not want the plan to rely on a tenuous majority composed of his own Likud and the small parties.

Likud, in fact, is divided. Deputy Premier and Housing Minister David Levy, a powerful voice in the party, has expressed serious reservations, as has Welfare Minister Moshe Katzav.

THE MOST SERIOUS ARGUMENT AGAINST THE PLAN

The most serious argument against the plan is the new tax structure that will reduce the marginal income rate from 60 to 45 percent while at the same time abolishing price controls and cost-of-living adjustments. Histadrut and many Laborites charge that the wealthy, the high salaried and businesses would benefit, leaving the low wage earners to bear the brunt of the economic burden.

Nissim admitted that the higher income groups would be the main beneficiaries but insisted that the lower income groups would benefit too. He said this was inevitable “if the purpose was growth, which everyone, after all, agrees must be the main goal of the government now that the initial phase of the economic recovery program has been in effect for a year-and-a-half.” By reducing taxes of individuals and companies, Nissim said, he intended to stimulate incentives to work and to invest. He referred to the “brain drain” to the U.S. where the tax reform bill passed by Congress this year reduced the marginal tax rate to 28 percent in the highest income brackets.

CITES MODEST AIMS

Nissim said his aims are more modest: to enable the worker and the investor to retain “at least half of his earnings in his own pockets.”

Nissim also defended the expected reduction of prices on many imported goods beginning January 1. He said this was not a signal by the government for consumers to return to the buying spree partly responsible for the economic crisis of the 1980’s.

He explained that the price reductions were the result of long-standing agreements between Israel and the European Economic Community (EEC). “If we do not honor these tariff-lowering agreements, we shall prejudice our credibility and, in the long run, harm our economy,” Nissim said.

Nissim has indicated he is ready for a dialogue with the Labor Ministers, Histadrut and the Manufacturers Association. He stressed, however, that while he was willing to negotiate over “details” he would not compromise the principles embodied in his plan.

The Labor Ministers have also indicated a desire for serious negotiations. Observers are predicting a lengthy process of review and revision before the plan is approved by the Cabinet.