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The Knesset rejected the referendum proposal yesterday by a large majority. Finance Minister Benjamin Netanyahu was disappointed. The Sharon government survived. Now only the 2005 state budget needs to be passed - three months into the year. We have never had such a bad year from a budget perspective. The delay means damage to investments, new plans and economic growth. There has also never been a year when coalition agreements were so costly or the hole in the revenues side so large.

The hole in revenues stems from a late 2004 agreement with the Histadrut labor federation in which the Finance Ministry gave away NIS 1.1 billion in tax revenues in exchange for industrial quiet, and from failure to cancel Eilat's VAT exemption, which cost the state NIS 400 million. The state solved the problem by raising taxes and an agreement with employers to delay tax relief from their National Insurance contributions.

On the spending side, the fiasco was even bigger. Coalition agreements usually cost money, but not this much. Every year the treasury sets aside a ballpark NIS 600 million reserve, but this time all the walls have been battered down. United Torah Judaism got NIS 290 million, Labor got NIS 600 million, and Shinui walked off with NIS 700 million.

The money Shinui got won't be in the budget approved next week. The cabinet won't decide where to take it from until Sunday. It would be better if the money came out of defense spending due to the improvement in our strategic situation, but Sharon will block that.

One highlight in the process was the whole healthcare basket debacle. The basket committee pulled a well-known fast one by presenting the most sensitive and painful problem - cancer patients - to the public to get more money. The trick worked and Sharon decided to increase the basket budget by NIS 150 million, without telling Netanyahu. That money isn't in the budget yet either.

The result of all these moves is a change in the budget priorities without debate, without presenting alternatives. That is bad management that hurts the country. It stems in part from the poor relations between Sharon and Netanyahu. Sharon is convinced Netanyahu aims to topple him as fast as he can. Sharon has evidence: the putsch attempt during the October 2004 Knesset disengagement vote and the finance minister's unremitting efforts to plug a referendum.

The result is mutual hostility and lack of cooperation. The economy needs a perfectly tuned duet played on a single piano. Instead, Sharon and Netanyahu kick each other in the ankles under the ivories. The result is off-key, out of tune and torture for listeners.