Israel is not in a recession, but the next government will likely be forced to raise taxes after the upcoming elections to cover its budget deficit, Bank of Israel Governor Stanley Fischer said on Tuesday.

Speaking to the Knesset Finance Committee, Fischer said that his decision, announced Monday, to lower the interest rate to 1.75 percent was the result of a revised economic forecast for the coming year.

In September 2011, the interest rate stood at 3.25%. Since then, the Bank of Israel has dropped the rate six times, and it is now below 2% for the first time in over two years.

The Bank of Israel Research Department has projected that economic growth in 2013 will stand at 3.8%, up from 3.3% in 2012. However, a portion of that projected growth is predicated on the production of natural gas.

According to Fischer, if production from the offshore Tamar field, some 80 kilometers (50 miles) to the west of Haifa, does not begin in the first half of 2013, then the projected growth for next year will drop to 2.8%.

On Tuesday Fischer told the committee that the lower interest rate is meant to help stimulate demand in the housing market, which waned in the third quarter of 2012.

“The slowdown is not drastic,” Fischer told the Finance Committee, “and we are not talking about a recession or a crisis. ”

He added that cutting the budget would be difficult, but nonetheless important, and that the government “will have to raise taxes.”

Moshe Gafni (United Torah Judaism), the chair of the committee, said the next government would have to decide “whether to again hurt the weaker segments [of society]” or go after companies and economic bodies.

“The appropriate step is to stop the constant damage to the lower and middle classes,” Gafni said. Rather, Israel should “raise taxes on capital gains in a measured fashion for businesses and economic bodies.”

The committee did approve on Tuesday morning by a vote of 9-1 an across-the-board budget cut for all government ministries with the exception of Defense, Welfare and Education. The NIS 741 million (approximately $198 million) cut was passed by the cabinet in July.