Israel's new finance minister says painful cuts needed

TEL AVIV (Reuters) - Israel's new government will have to make painful spending cuts to tackle the country's huge budget deficit, finance minister Yair Lapid said on Sunday, just days after taking office.

Wasteful policies and lower-than-expected income has created a "monstrous" overdraft for Israel that needs to be dealt with head on, Lapid said in his first statement since a new government was formed last week.

"The picture that is slowly unfolding before me is much worse than I supposed," he said.

The previous government went on a spending spree despite slower economic growth that hit tax income. As a result, the new administration will have to cut spending and increase taxes to keep the budget deficit from spiralling out of control.

Last year, the deficit reached 4.2 percent of gross domestic product, more than double an initial target of 2 percent.

The 2013 deficit target is 3 percent of GDP but analysts doubt that estimated spending cuts of about 14 billion shekels (2.5 billion pounds) and tax hikes of 6 billion shekels currently planned will be enough to meet that goal.

Pushing through a budget for 2013 is Lapid's most immediate concern. "We will reduce expenses, we will also cut in painful places. It will be hard ... But there is an advantage: If we do it now it won't take long," Lapid said.

Lapid's start-up centrist party surged to a surprising second place in a January 22 election. Lapid, who turned to politics only last year after almost 30 years as a newspaper and TV journalist, promised in his campaign to ease an increasingly heavy burden on the middle class.

But he said over the next year it might appear that things were getting worse before they got better.

"The more decisive our actions are now, the more we will be able to do next year -- more for lowering housing prices, for education, welfare, helping small businesses, sharing the burden," the minister's statement said.

(Reporting by Tova Cohen. Editing by Jane Merriman)