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Four days into the new year and still no sign of a budget. Government ministries cannot take on a new worker, cannot sign a contract, cannot launch projects, cannot transfer full support to institutions of culture, sport and welfare. Plans for growth and infrastructure are starting to be held back - though no one really cares. We're used to it. And to the lack of management too.

There are two whopping holes in the state budget - on the income side, and from the expenditure point of view.

When it comes to the revenues, the hole opened up in the wake of the signing of a wage deal with the Histadrut under which the treasury waived certain planned taxes - on advanced training funds (keren hishtalmut), night shifts and state-funded non-contributory pensions - to the tune of NIS 1.1 billion.

In addition, the Knesset Finance Committee determined that taxes on lottery winnings (Mifal Hapayis and Toto) will start from NIS 50,000, contrary to the treasury's plan to tax winnings from the first shekel - resulting in a loss of revenue of NIS 100 million.

To top it all, the Knesset will not agree to canceling Eilat's VAT-free status - another NIS 400 million in lost income - such that in total, there's a hole of NIS 1.6 billion in the state's income.

To solve the problem, the treasury imposed extra duty on cigarettes (NIS 400 million) and on diesel fuel (NIS 300 million), thus reducing the problem to NIS 900 million. To close this gap, the treasury will have to tax alcoholic drinks and cancel some exemptions - anything as long as it's not increasing income tax.

The hole on the spending side stems from the coalition with Labor (NIS 600 million), with United Torah Judaism (NIS 290 million), additions to the Chief Scientist and others (NIS 350 million), and fulfilling demands from other Likud MKs (NIS 160 million) - all in all, NIS 1.4 billion.

Budget reserves stood at NIS 600 million, meaning the government has to cut back NIS 800 million. The big question is how.

The easiest way is to implement a flat 3-percent cut on spending at all government ministries. This may be the simplest, but it's misguided because there is no place for even-handedness here. There are priorities. Cuts should not be made in health, education, welfare and infrastructure when there is a perfectly good alternative - defense.

Our security situation has improved. There is no western front and contacts have been re-established with the Palestinians. So it would be possible to make cuts in the enormous defense budget, in which there is plenty of fat to trim.

To Sharon, disengagement is important. Netanyahu suggested he cut NIS 500 million from the defense budget, and make only a 1-percent across-the-board cut in the other ministries. Sharon rejected the proposal. He doesn't want to annoy the chief of staff. That's a mistake. Sharon and Netanyahu have already made one mistake when they didn't enter spending on the disengagement into the framework of the budget. The budget, as a result, has exceeded the long-term plan of keeping the deficit to 3 percent GDP, and will now hit 3.4 percent GDP, which is too high.

One mistake is enough. So the NIS 800 million must be cut from the defense budget - because apart from disengagement, we do have other aims: growth, employment and fighting poverty.