JERUSALEM, Israel - Following late-night discussions on Tuesday, the Cabinet passed the proposed budget by a near majority - 26 in favor, with the four Shas party ministers the only opposition.
In every administration, the ultra-Orthodox Shas party lobbies to raise government child subsidies for Orthodox families, which traditionally have many more children.
Prime Minister Binyamin Netanyahu said ministers found "the balance between socioeconomic needs and security needs."
"We prevented harm to the weak sectors of society, as we promised," the prime minister said.
The plan, meant to see the country through the global economic downturn, trims as much as 6 percent from ministerial budgets and raises the nation's VAT (value added tax) by 1 percent.
For the first time in the Israel's history, fruits and vegetable purchases will also be subject to VAT, which will add an estimated 1.8 billion shekels to the budget.
The defense budget will also be cut by nearly $400 million. Defense Minister Ehud Barak lauded Netanyahu and Finance Minister Yuval Steinitz for the way in which they handled the negotiations and said the budget balanced the needs of the population with the constraints of the economy.
IDF (Israel Defense Forces) Chief of General Staff Lt.-General Gabi Ashkenazi expressed his dissatisfaction with raising the age of career officer's retirement, saying that career officers "do not have a labor union."
The Manufacturers Association of Israel President Shraga Brosh told Army Radio that the new budget will provide thousands of jobs for the nation's unemployed.
"We bridged the final differences and arrived at an economic plan that we have been striving for over some time," Shraga said.
Meanwhile, teachers in 13 cities called a one-day strike on Wednesday to protest the government's austerity plan.
Sources: Haaretz, Ynet news