The government plunged more deeply into supply side economics today, a policy the opposition charges is a pre-election ploy to woo voters with lower prices on a wide range of consumer goods.
The latest reductions, the sixth since Yoram Aridor became Finance Minister, was touted as a campaign to “beat inflation.” It involves the Dubek cigarette cartel which has demanded a 31 percent price increase. the Treasury agreed to absorb the rise by lowering the cigarette tax from 54 to 45 percent. In another development, the Treasury last month borrowed an unprecedented 870 million Shekels (about $80 million) from commercial banks. It denied press reports that the loans were taken to avoid printing more currency.
According to the Treasury, the sum borrowed is intended to finance regular government activities and the loan, at an interest rate of 5.75 percent for 17 years injects only a “small” amount of money into the economy. However, despite restraining measures, it appeared that high security expenditures and growing subsidies will result in an unprecedented increase in the money supply.
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