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Art By Giora Carmi
The U.S. administration has so far con-
fined itself to gently prodding Israel in the
direction of economic reform. But beneath
the avuncular tone is a real determination
to see that Israel, in the words of Professor
Stein, "gets its act together."
It is considered likely that if the
economy continues along its present unre-
constructed path, Congress and the White
House will find concrete ways of express-
ing their collective displeasure.
The Israeli finance minister's original
economic package, announced six weeks
ago, is based on a number of clearly defined
objectives aimed at further decreasing in-
flation, improving the balance of payments
and increasing growth by four percent in
the coming financial year.
lb achieve this, he is pursuing activities
in five distinct areas.
First, he advocated a sweeping tax
reform. Israelis presently pay the highest
taxes in the world — 58 percent of the
GNP, compared with Denmark and Sweden,
the next-highest taxed, at 50 percent.
Moreover, he is seeking to simplify the
tax system: the present tax laws are so
complex, confused and cumbersome that
they have become the object of widespread
abuse: on the one hand, they are an invita-
tion to widespread evasion and, on the
other, a disincentive to work.
The reforms, which the finance minister
described as the most far-reaching ever
made in Israel, are an echo of the new
United States tax reform bill: they will
lower tax rates, reduce the number of tax
bands (or brackets) and broaden the tax
base, with the top personal tax rate corn-
ing down from the present 65 percent to
between 45 and 50 per cent.
The losses of revenue incurred by these
changes will be recouped by ending the
"tax holiday" that is now granted to all
forms of financial assets: taxes will be im-
posed on interest derived from bank depos-
its and savings schemes as well as from
stock market transactions.
In addition, all government handouts —
from pensions and child • allowances to
welfare payments — will become taxable
if they bring the recipient to the tax
threshold.
The second area of attention is the
capital market. The main thrust is to
create an attractive climate for foreign and
domestic investment by freeing resources
currently absorbed by the public sector
and redirecting them to the private sector.
The government will then have to com-
pete with private industry for loans, and
this will have the effect of driving down
interest rates.
The third involves the removal of many
of the present government restrictions on
the movement of foreign currency. Among
other things, Israeli companies with
foreign subsidiaries will be permitted to
If there is a lesson to
be learned from the
experience of
countries such as
Israel, it is precisely
that an open economy,
without undue
intervention, enables
increased productivity
and full utilization
of potential.