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he only certainty about the
capital gains tax on stocks,
due to take effect Jan. 1, is
that both its supporters
and opponents exaggerate the im-
pact it will have.
It is not the most important in-
novation in the Israeli economy
in recent years, and it will not do
what its supporters claim: nip in-
flation, vastly increase Treasury
revenues, and end wild specula-
tion.
Nor will it raise inflation, kill
the Tel Aviv Stock Exchange, and
bring economic ruin to the coun-
try, as its detractors predict.
The very fact that, in the sum-
mer of 1993, the most vocal op-
ponent of such a tax was Israel
Finance Minister Avraham
Shohat, and that its most ardent
and stubborn supporter today is
the very same Mr. Shohat, should
indicate that arguments can be
made for both positions with
equal conviction.
Even its impact on the bourse
will not be long-lasting. Investors
will undoubtedly learn to live
with it.
As even a cursory review of re-
cent events shows, the TASE's
doldrums did not begin with the
new tax, nor will the market dra-
matically revive if Prime Minis-
ter Yitzhak Rabin, whose own
vacillations on the issue have
David Bar Man is executive
editor of the Jerusalem Post.
T
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Matto Dealer far Oval' 35 Yetlf$
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probably damaged his credibili-
ty more than anything else, will
now decide to make another 180
degree turn and abolish it.
Far more worrisome than the
possible consequences of the cap-
ital gains tax is the fact that in-
flation is still rising, as last week's
cost-of-living index rise of 1.3 per-
cent plainly indicates.
It can hardly be comforting to
a government which made bring-
ing inflation down to `Western"
dimensions its goal.
This November was the worst
in four years, and the annual in-
flation rate — single-digit in 1992
and a little over 11 percent in
1993 — is now approaching 15
percent.
With good reason, this dan-
gerous inflationary trend is Bank
of Israel Governor Jacob
Frenkel's main concern.
To combat it, he has insisted
on raising interest rates. But, as
Mr. Frenkel readily admits, rais-
ing rates alone is ineffective. It
must be part of an economic pol-
icy which encourages growth and
limits government expenditures.
No such policy exists.
The government may do well
to study the recommendations of
the Shalem Center, which in a
position paper written by Jason
Elbaum suggests the termination
of the Law for the Encourage-
ment of Capital Investment.
The system of subsidizing "ap-