Israeli cabinet approves raft of austerity measures

Israel's cabinet approved a series of austerity measures Monday, including tax hikes and ministry budget cuts, DPA reported.

The measures include an income tax hike for middle and high income earners, raising value added tax (VAT) from 16 per cent to 17 per cent, and cuts to the budgets of all ministries except Defence, Welfare and Education.

Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz say the measures are necessary to reduce the budget deficit, and hope the plan will add a further 15 billion shekels (3.7 billion dollars) to the state treasury.

They warned that unless Israel adopted these measures, its economy could go the way of several eurozone countries which now find themselves in dire financial straits.

Although the announced measures have generated opposition in Israel - and were opposed by nine ministers in Monday's cabinet vote - Stanley Fischer, the Governor of the Bank of Israel came out in support of them.

In addition to the steps approved by the cabinet Monday, Israel's Finance Minister Yuval Steinitz last week raised taxes on cigarettes and beer.