Bank of Israel Governor Stanley Fischer on Saturday said Prime Minister Benjamin Netanyahu and Finance Minister Yuval Steinitz’s planned tax raises were “brave and vital,” adding such steps were necessary to prevent an even bigger budget deficit.

“There are problems which stem from the large budget deficit; if we don’t solve them, we will find ourselves in 2013 with an even bigger deficit in the national budget,” Fischer said. “Such a possibility has already given rise to doubts and uncertainty regarding Israel’s ability to run the economy at the required level.”

The tax raises — pending approval on Monday — are part of a package of measures officials say are needed to pay for several economic reforms, including free schooling from age 3.

The purchase tax on cigarettes went up overnight from 260.6% to 278.6%, raising the average cost of a pack of cigarettes, currently about NIS 20, by about NIS 2-3. In addition the purchase tax on beer was raised from NIS 2.18 to NIS 4.19 per liter.

Together, the changes are expected to earn the treasury an annual NIS 1 billion.

Fischer stated that in light of the challenges Israel would be facing in the coming years, “the steps taken by the prime minister and finance minister are brave and vital to improving our budgetary situation in 2013.”

Numbers watchers say figures show Israel’s economy slowing down, raising concerns that the economy could be headed for a recession.

The Israeli financial news outlet Globes reported that the month of June ushered in a slew of shabby economic data: As home prices and budget deficits rose, the Consumer Price Index (CPI) unexpectedly dropped by 0.3 percent and retail chains’ sales slowed, as did exports.

Israel has generally prided itself on its resilient economy, which managed to weather the 2008 world financial crisis. But the start-up nation may be starting to feel the effects of a worldwide slowdown.