The budget measures stifled economic activity and did not adequately address the problem of government spending, Opposition finance spokesman Charles Mangion said yesterday.

Speaking during the budget debate on the finance ministry, Dr Mangion said the government claimed that the situation abroad had impacted on the slow performance of Malta's economy.

Yet Malta's economic expansion was much lower than that of other EU acceding states.

The government had failed in its aim of economic expansion as real growth this year was of just 0.3 per cent and consumption had only increased by one per cent when the previous year it had increased by four per cent.

The savings ratio had dropped to 1.8 per cent from 2.3 per cent and household disposable income increased by just one per cent. The inflation rate, however, increased by a higher percentage, reflecting that disposable income was lower than the inflation rate.

Although the government wanted economic expansion by the private sector, growth was only generated by government expenditure.

The private sector lacked the confidence to commit itself. This was the country's economic reality. Unemployment was consistently rising and there was a lack of job security.

Other countries reduced the tax burden to promote growth. But this government came up with budget measures raising the tax burden by Lm59 million.

The VAT increase from 15 to 18 per cent would affect mostly the middle and low income earners and would have a direct impact on the cost of living and competitiveness, so it would not strengthen the economy.

The same could be said for the measure on property. Rather than the capital gains tax on inherited property the government could have acted to encourage people to give more realistic valuations of the property they would have inherited.

On the increase in tax on second hand vehicles, Dr Mangion observed that the tax on these cars was not being increased because these cars were harming the environment. Had this been so, the importation of such cars should not have been allowed. With this measure the government was again taxing the middle and low income earners.

The government was not controlling expenditure but was increasing taxes to keep up with its expenditure without addressing the problem of economic activity.

Dr Mangion said the projected deficit of Lm78 million for this year had gone up to Lm140 million a reflection of unrealistic projections which was persisting for next year.

The government was calculating total income at Lm899 million and an increase in expenditure of eight to 10 per cent. It was saying that some of the additional income would be coming from stamp duty.

On which criteria was this leap being based when fiscal measures indicated a slow period, at least until the necessary adjustments were made?

Although for this year the government had projected revenue of Lm22 million through grants, this would actually be Lm3.4 million. Yet the government was again projecting an income of Lm50 million for next year from this source.

On Gozo Channel, Dr Mangion said revenue of Lm500,000 was being projected. Would this come from higher tariffs?

Turning to the national debt, he said that apart from the fact that this was much higher than projected, the figures of where this debt was to stand at the end of this month were not the same in two documents placed on the table of the House on budget day.

While the revised estimates showed the public debt at the end of the year to be Lm1,175 million, the financial estimates showed the total estimated public debt at the end of the year to be Lm1,242 million.

Dr Mangion said that to address the issue of competitiveness, the government had to give a good indication of how it intended to address and control ordinary expenditure, rather than increasing income from taxes.

Turning to customs, Dr Mangion said there was currently an element of uncertainty among workers. For while until election they were promised growth, it seemed that a study which was still confidential had been held which said that the number of workers had to go down from 600 to 230.

Labour MP John Attard Montalto said the Labour Force Survey showed how unemployment was rising, particularly in Gozo.

Many companies had reduced their workforce and the problem was that these companies came from different sectors with different wage levels.

Indeed, wages on their own did not contribute to the country's lack of competitiveness. One of the reasons leading to lower competitiveness was a poor entrepreneurial environment caused by this government.

This budget, he said, was not encouraging the creation of investment.

The Labour government had restructured the Malta Development Corporation but this government had just wasted two years to set up Malta Enterprise.

Dr Attard Montalto asked why a competitiveness index was to be drawn up when this already existed on the World Economic Forum, where Malta was classified 19th in certain investment and 42nd in business and entrepreneurship - figures which were worrying.

The government was also failing to stimulate SMEs, of which there was a substantial number. SMEs felt completely abandoned and they were not even assisted through small measures such as through land on which to build their business.

The government said it would be dedicating Lm40 million for the building of factories but this was to be spread over a four-year period.

Other speakers will be reported in another issue.