A State within a State: Industrial Relations in Israel, 1965-1987

By Ran Chermesh | Go to book overview

3
The New Economic Policy and the Autonomy of the Israeli irs
June 1985. A national unity government, led by the two major political blocs, the Labor and the Likud parties, tries to fight a rampant two digit inflation. The arsenal of solutions seems exhausted. Promising tripartite package agreements, agreed upon by the government, the Histadrut and the private sector Coordinating Bureau of Economic Organizations, achieve meager results. Prime Minister Peres (Labor) and Finance Minister Moda'i (Likud), assisted by prominent economists from the academia prepare a drastic secret program to solve the almost unsolvable crisis. The comprehensive economic stabilization plan includes the following main points:
1. An annual $750 million cut in the state budget.
2. A devaluation of the Sheqel by 18.8 percent.
3. An ad-hoc income tax of 8.3 percent on companies and self- employed.
4. A tax on high standard houses and apartments.
5. A partial compensation for low income families.
6. A three percent cut in public sector employment.
7. Increased mobility in the public sector.
8. A price hike caused by cuts in subsidies of basic foods and transport, followed by a three months price and wage freeze.
9. Gradual exemption from the price freeze following a decrease in the rate of inflation.
10. Encouragement of savings, aimed at encouraging economic growth.
11. A promise to keep all present public savings unharmed.

The plan was approved by the government after a marathon meeting lasting nineteen hours. The plan called for extreme labor market related steps such as wage cuts and sacking of employees, with implementation envisaged through emergency decrees.

Most of the details of the program were leaked to the press during the week preceding the decision of the government. Although the leaders of both the Histadrut and the employers' associations were notified by the prime minister a few days preceding the government plenum, essentially they were faced with a fait accompli.

-49-

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