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Jerusalem (JTA) — Israel's
Cabinet, after a 10- hour
special session last week
unanimously approved Fi-
nance Minister Yitzhak
Moda'l's far-reaching econ-
omic program aimed at
creating jobs for Soviet Jews
pouring into the country and
ending the economic stagna-
tion of the last three years.
Mr. Moda'i's program
would increase the tax
burden on ordinary Israelis,
but the net effect would be to
stimulate local investments
and exports to help generate
at least 500,000 new jobs for
up to a million immigrants
expected in the next five
years.
Though the plan has the
Cabinet's support, it faces a
stiff battle in the Knesset
and powerful resistance
from Histadrut, Israel's
trade union federation,
whose chief, Yisrael Kessar,
made clear he would not ac-
cept a plan that reduced the
living standard of the
average worker.
Although Mr. Moda'i's
ideas were known in general
outline, there were some
sharp surprises at the
Cabinet session.
One was his proposal for a
capital gains tax on com-
panies and individuals. The
Treasury eased the shock by
explaining that the levy
would be imposed only on
new saving plans, not ex-
isting ones.
Taxes will also be imposed
on lotteries and on the sale
of luxury flats of more than
$300,000.
Also unexpected was the
plan to impose a 16 percent
value added tax (VAT) on
services provided for
tourists, and on fruits and
vegetables sold at market
stalls.
It triggered fierce opposi-
tion from Minister of
Tourism Gideon Patt and
Agriculture Minister Rafael
Eitan.
Israeli companies have
paid for capital gains on
their shares since 1982,
though loopholes in the law
allowed many profitable
transactions to escape taxa-
tion. Those loopholes would
be abolished under Mr.
Moda'l's scheme.
Individual benefits from
pension and savings funds
have never been taxed.
Under the new plan, future
profits from such sources
would be taxed at a flat rate
of 20 percent per annum.
But the capital gains tax
would not be applied to

profits derived from shares
purchased on the stock
market.
According to economic
observers, the government
wants to encourage citizens
to invest their spare cash in
stocks, so that Israeli in-
dustries can accumulate
more capital and
presumably create more
jobs.
The proposal to charge
tourists a 16 percent VAT
aroused a storm of protest
from that industry, which
has suffered a serious
decline as a result of the in-
tifada and more recently the
Persian Gulf crisis.
Tour and hotel bookings
have been canceled
wholesale this month and
some tour companies and ho-
tels have begun to lay off
staff.
Tourism Minister Patt re-
portedly warned at the
Cabinet meeting that once
lost, those vacationers would
not quickly return to Israel.
Opposition to the VAT on
fruit and vegetables was led
by Mr. Eitan who warned it
would inevitably encourage
a black market in produce.
The measure was referred
to a ministerial committee
for a final decision. If the
committee does not approve
the levy, it will have to pro-
pose alternative sources of
revenue.
Mr. Moda'i's plan
dovetails with new measures
proposed by Commerce Min-
ister Moshe Nissim to
simplify investment regula-
tions and offer higher
government guarantees to
overseas investors.
But ordinary Israeli wage-
earners stand to suffer, and
not only because the price of
cigarettes will rise by 16
percent and beer by 14 per-
cent.
With unemployment hov-
ering between 9 percent and
10 percent and threatening
to go higher as thousands of
immigrants enter the job
market, the government
plans to put more people to
work by tinkering with the
minimum wage.
Under the new plan, it will
not apply to new workers in
their first six months of
employment.
Unemployment insurance
benefits will be reduced to
create incentives to take
whatever jobs are offered,
however menial.
Meanwhile, the Finance
Ministry and the Bank of
Israel engineered a modest
devaluation of the shekel

