Israel's cabinet approved on Sunday a plan by the Ministry of Finance to curb the limits of the government's budget.
Consequently, the government spending in 2015 will increase only by 2.6 percent, instead of the original 5 percent target.
"The meaning of this move is to prevent a dramatic tax hikes as well as preventing unnecessary inflation of government's spending, " Finance Minister Yair Lapid said in a statement.
According to the decision, the government spending will be stipulated by a formula based on the desired debt to Gross Domestic Product (GDP) divided by the actual debt to GDP ratio, and doubled with the average number of Israeli population over the past three years.
The Finance Ministry and Israel's central bank agreed on Sunday to maintain a 3 percent deficit target for 2014.
Lapid chose to tighten the limits of government spending instead of having another round of tax hikes, a move that ignited in the past a wide public discontent amidst Israel's high cost of living. Lapid recently cancelled a broad tax hikes due to larger incomes than expected.
Following the government's decision on Sunday, Israel's central bank released a statement supporting the new plan. However, the bank also said it is "desirable" that the adjustments in the state 's budget also come from an increase in tax revenues, in particular by way of cancelling exemptions, in view of the low tax burden in Israel, according to the central bank.