Cabinet Approves Austerity Budget

YERUSHALAYIM (Reuters) -

Israel’s cabinet on Tuesday approved the 2013-2014 budget draft that will slash spending and hike taxes this year and next to rein in a growing budget deficit.

Cabinet ministers approved the 17-month state spending package 21-1 with cuts of at least 25 billion shekels ($7 billion) between August 2013 and the end of 2014. Defense spending was cut by 3 billion, down from a proposed 4 billion.

Israel’s budget deficit was 4.2 percent of gross domestic product (GDP) last year — more than double its initial target — due to overspending by the previous government and lower-than-expected tax revenues as the economy slowed.

Inability to win support for an austerity budget was a major factor in Israeli Prime Minister Binyamin Netanyahu’s decision to call for early elections in January.

However, the new budget will face fierce opposition in the Knesset, which must approve it by the end of July for it to come into effect.