The Israeli parliament approved a series of austerity measures presented by Prime Minister Benjamin Netanyahu's government to help rein in the country's growing deficit.
The measures with slight modifications were passed in the Knesset by a vote of 28 to 16, according to a parliamentary source.
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Netanyahu issued a statement praising the vote saying the measures would prevent a huge budget deficit and preserve and protect the Israeli economy against the global economic crisis.
The measures include an immediate increase of the VAT from 16 to 17 percent, as well as a one-percent tax hike next year for individuals whose monthly income is greater than 14,000 shekels (2,800 euros).
There were budget cuts worth 750 million shekels in several ministries, although defence, education and welfare were spared the budget axe.
The government's austerity programme however runs of risk of angering Israelis who regularly protest against the high cost of living.
According to a poll taken Friday, Netanyahu's popularity is at its lowest since he came to power in April 2009 with 60 percent of those surveyed dissatified with his performance, 31 percent satisfied, while the rest had no opinion.