The government should cut spending by an additional NIS 5 billion ($1.24 billion) in the 2013 state budget, Bank of Israel Governor Stanley Fischer said on Thursday. "The government should cut more in the 2013 budget on top of the cuts already made [for the 2012 budget], otherwise the deficit in 2013 will double and reach 6 percent of the GDP," Fischer said. "The economy would not be able to withstand such a deficit, and it cannot expect to receive any outside help."

Fischer commended Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz's recent decision to pass austerity measures as a means to rein in government spending and meet the target deficit for the 2012 fiscal year, including cuts to ministerial budgets and an increase in income tax.

"Governments who are up for re-election usually prefer to kick the can down the road and tackle the problems after the elections are over," Fischer said. "Such conduct frequently triggers an economic crisis even before the polls open."

Fischer said he was surprised by Netanyahu and Steinitz's willingness to put their political future on the line. "I have been highly critical of the government, not because I took joy in that, but because I did not expect the government to take the steps it eventually took," he said.

The Knesset will convene for a special session on Monday despite being on summer recess to approve a value-added tax rate hike from 16 to 17% that would take effect Sept. 1, and to approve a host of other measures that would add some NIS 14.4 billion ($3.58 billion) to the state coffers this year. The cabinet approved the plan on Monday.

Shas, one of the religious parties in the government, and Defense Minister Ehud Barak's Independence Party will vote in favor of the measures in the Knesset vote after cuts in the Defense Ministry, Interior Ministry, Construction and Housing Ministry and the Industry, Trade and Labor Ministry were put on hold or scaled back. Large cuts to the budgets of local municipalities and the home front have also been put on hold for now. In addition, an extra NIS 250 million shekels ($62.2 million) were appropriated for public housing, revamping run-down neighborhoods, rent subsidies and education and welfare programs run by the Industry, Trade and Labor Ministry and the Construction and Housing Ministry.

The Knesset Finance Committee is expected to convene on Sunday and Monday for a marathon session in which it is expected to approve the measures.

Israel Hayom has learned that the Finance Ministry is planning to introduce additional austerity measures for the 2013 financial year. If approved, the new cuts and tax hikes are likely to generate a further NIS 14 billion ($3.48 billion) in revenue. The new plan will be put to the cabinet and the Knesset for approval in September. It is likely to expected to include further wage control measures for government employees, a 2-3% pay cut for government employees who earn more than NIS 20,000 ($5,000) per month, and NIS 2 billion ($497 million) in cuts to defense spending and child allowances paid by the National Insurance Institute.