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ONLY U.S. AID KEEPS JEWISH STATE AFLOAT
Israeli economy a basket case
Tax
fears weaken shekel; JERUSALEM—On Wednesday morning the shekel sank 1.4% to a new low against the dollar of 4.85. The cabinet this week agreed to a capital gains tax and a tax on savings interest, in the hope of raising 3bn shekels ($627m; £433m) to help close the gap in the public accounts. No Israeli government has succeeded in introducing a tax on capital gains. The West Bank incursion has hiked defense bills But the current situation—with defense bills bloated by 18 months of Palestinian resistance and three weeks of armored incursion into the West Bank, just as an economic crunch is reducing tax receipts—means desperate measures are needed. The Israeli media has speculated that the new tax will be set at a rate of 25%. A 1% hike in VAT to 18% is also part of the package. Another 6bn shekels in spending cuts and a 4bn boost to the deficit—which some observers now think could climb to over 6% of GDP—make up a 13bn shekel rewrite of the 250bn shekel budget. The government has also been considering such radical measures as a public sector wage freeze and a sharp cut in welfare benefits for large families. Israeli Prime Minister Ariel Sharon Sharon has little choice but to back new taxes. This last is likely to dominate a cabinet meeting on Wednesday. Sharon is dependent on the votes of rightwing, ultra-Orthodox Jewish parties for the continued survival of his administration. Splits One of them, Shas—the third largest party in the coalition—has publicly criticized the planned cuts, which it says impact the many orthodox Jews who go to religious schools rather than performing military service. Labor union federation Histadrut is also threatening to oppose the moves, declaring a "labor dispute" which could lead to a general strike within two weeks. Histradrut had frozen several labor disputes in response due to the worsening security situation, but is now threatening to abandon its solidarity with the government. "We are appealing to Prime Minister Ariel Sharon to personally intervene so we don't have to take strike action," said a Histradrut spokesman.
Remember the LIBERTY?
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