Israelis Await Outcome of New Major Fiscal Policies

Thousands of Israeli wage earners, salaried employes, businessmen and professionals were left in a state of uncertainty today as the old fiscal year ended without the settlement of any of the major fiscal matters that affect their every-day lives. Normally, the last day of June terminates existing labor agreements and cost-of-living allowances. But the labor agreements have not been officially extended or renewed and the COL scale has not been recalculated; nor was their any decision as to what portion of the allowance for higher living costs will be tax free–if any.

The new tax reform measures were supposed to come into effect tomorrow with the start of the new fiscal year. But they are still in the Knesset Finance Committee undergoing preparation for final reading before the full Knesset. Treasury officials said that since July salaries are usually paid at the end of the month, the new tax regulations would be applied provided the Knesset approves them by July 12. Otherwise, they will not take effect until September, Although the tax reforms greatly reduce the rate of taxation, virtually all exemptions have been abolished and loopholes closed.

Meanwhile, Histadrut and the Treasury have agreed tentatively to continue existing labor contracts on a day-to-day basis until the tax reforms are approved. Histadrut has conditioned its agreement on postponement of the projected added value tax from its present October deadline to sometime next year. Histadrut is also insisting on maintaining the COL allowances tax free as the only means to protect workers against rising prices.

WARNS OF NEW ROUND OF INFLATION

Last night, Finance Minister Yehoshua Rabinowitz, Minister of Commerce and Industry Haim Barlev, and Labor Minister Moshe Baram came to Tel Aviv for a meeting with the Histadrut Executive to persuade the trade union leaders to accept the government’s request that they extend the old labor contracts, agree to modification of the COL allowances and minimize new wage demands. Rabinowitz warned that without an extension of the old contracts the economic situation would deteriorate further.

He told the Histadrut Executive that new COL allowances, coupled with the tax reforms, would pour billions of Pounds into the economy that could touch off a new round of inflation leading to economic catastrophe, Barlev argued that to pay full compensation for price hikes would cost IL 700 million which neither Histadrut nor two-thirds of the nation’s businesses could afford.

Histadrut officials were not particularly worried about the delay in reaching new agreements. It is commonplace for negotiations to continue long after the expiration dates. The chief concern of the trade unionists is to prevent unemployment and they seem inclined to extend the old contracts provided the added value tax is put off. No decisions were reached last night, however, and the discussions in Histadrut circles will continue into next week. They are expected to result in a decision to extend the old contracts for the time being.