The government plans to raise income taxes next year by 1% for those earning more than NIS 5,000 a month, the Finance Ministry stated Friday.

The step is expected to be part of the package of tax increases and budget cuts the cabinet is set to approve on Monday.

Furthermore, a tax on high-income individuals will apply to those earning NIS 800,000 annually, down from the current level of NIS 1 million.

In a two-hour meeting between Finance Minister Yuval Steinitz and Yisrael Beytenu leader Avigdor Liberman Friday, the latter offered support for the package of changes, according to a spokesman.

However, sources in Yisrael Beytenu clarified that Liberman's agreement to support the planned tax raises and budget cuts are not an indicator that the party will back the 2013 state budget when it comes to a vote later this year.

Prime Minister Binyamin Netanyahu's associates have hinted in closed conversation that Netanyahu sees Monday's vote as a bellwether for how hard it will be for him to pass the budget.

The vote on the budget is seen as the indicator of whether Netanyahu will need to initiate early elections. If he sees that he cannot obtain enough support to pass the budget he is expected to initiate early elections in October that will be held at the beginning of 2013.

But if he can get Yisrael Beytenu, Habayit Hayehudi and the Independence party to support the budget and a few opposition MKs to abstain, in order to pass it, Netanyahu may be able to complete his term which is set to end officially on October 22, 2013. The only ministers who have said they will vote against Steinitz's plan on Monday are the four ministers from Shas. Shas traditionally votes against the budget in the cabinet whether or not they are in the coalition.

Labor leader Shelly Yechimovich also responded Friday to the announcement, deriding Netanyahu for his spate of recent "contradictory" economic policy announcements.

"You could get dizzy from all of Netanyahu's contradictory economic decisions in the last three days," Yechimovich said.

"One day he's lobbing a tax on the rich, the next day he cancels it. One day he levies a VAT [Value Added Tax] and condemns income tax with all his might, and the next he levies an income tax. One day he says there are no free lunches and the next he tries to placate the public and say families will have more money after the cuts," the former opposition leader continued.

The cabinet is expected to pass a package of tax increases and spending cuts, which Bank of Israel Governor Stanley Fischer evaluated as "very responsible conduct," on Monday.

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