Workers, Industry Reportedly Agree on New Israeli Austerity

The Israeli government won agreement from workers and industry Wednesday on new austerity measures to help control the economy, Israel radio reported.

The new accord is for eight months, the radio said, replacing a three-month wage-price freeze that expires in two weeks. Under the freeze, inflation has fallen from more than 20% a month to 3.7% in December.

According to the report, the prices of subsidized goods will rise immediately by 25%. A liter of milk, slightly more than a quart, now costs 188 shekels (28 cents) and a kilogram (2.2 pounds) of ground meat 2,860 shekels ($4.26). Gasoline goes up by nearly 38%, including a 10% increase earlier in the week, from $1.74 a gallon to $2.41.

The broadcast said the price of water and electricity would be increased 50% immediately.

Prices of most other goods and services will increase by 5% in the first month and from 3% to 5% in the second month, the radio said.

The price increases are official, the broadcast said, but other details, including the length of the agreement, can be altered before it is signed.

Government ministers had called for halving subsidies, on which the government currently spends between nearly $2 billion a year, and the sharp increases were expected.

Wage earners will be compensated in their monthly pay with a $10 increase and a 5% income tax credit, the radio said, and further wage increases in the next few months were not ruled out.

The plan appeared to be a compromise between the industry association’s demands for more than a 5% price increase to compensate them for falling profits and organized labor’s demand for an end to the wage freeze.

Subsidy cuts indicated a victory for Prime Minister Shimon Peres over initial labor opposition and signaled that the government intends to maintain control over wages and prices. Inflation in 1984 was a record 445% for the year as a whole.

The new economic agreement follows announcement of a $23-billion budget for the 1985-86 fiscal year beginning in April, containing reductions in government spending.

The U.S. government demanded reductions as a condition for increased aid. Israel has requested $800 million more in U.S. aid for the fiscal year than the $2.6 billion already authorized.