Agreement Reached on New Eight-month Economic Package

A new eight-month economic package that will focus more on reducing the government’s expenditures than reducing the rate of inflation will take effect next month when the current wage-price freeze package expires.

Agreement was reached on the salient points of the new package at a grueling 15-hour meeting of top goverment officials with representatives of Histadrut and the Employers and Manufacturers Association which ended after dawn today. Premier Shimon Peres presided, and Finance Minister Yitzhak Modai and Economics Minister Gad Yaacobi were the principal participants on behalf of the government.

Under the new package, State subsidies for basic goods and services will be reduced from the present 100-300 percent range to a maximum of 25 percent, with subsidies for many items much lower. Subsidies for electricity and water will be virtually eliminated. The Treasury is expected to save about $1 billion a year.

INTERIM PRICE HIKES, SUBSIDY CUTS

Although the new package will not begin until February 5, interim subsidy cuts and consequent price hikes took effect at midnight last night. The prices of gasoline, kerosine, fuel oils, cooking and heating gas rose 25 percent, on top of the 10 percent fuel price increase allowed by the government last week. The cost of electricity and water will go up by 50 percent once the new package is ratified by the Knesset’s Finance Committee.

The prices of non-subsidized goods are expected to increase by an average 10 percent next month and will go up by about five percent a month thereafter. Further increases in the cost of subsidized goods will depend on the rate of inflation and the cost of the Dollar.

The new economic package will be in effect five months longer than the wage-price freeze instituted last November. The freeze reduced the rate of inflation to an 18-month low of 3.7 percent in the second half of December. But the price hikes already introduced will send the January c.o.l. index back up to about 10 percent. The figures will be announced on February 15.

Wage-earners will be compensated by cost-of-living allowances, although at a lower rate than before, an extra five percent rebate on their income tax and a payment equivalent to about $10 at current prices.

Several components of the new package have yet to be worked out. Talks will be resumed at the Prime Minister’s Office in Tel Aviv this evening, with Histadrut Secretary General Yisrael Kessar and Eli Hurvitz, president of the Manufacturers Association.