Opposition leader Alfred Sant said yesterday that the government should ask the Auditor General to verify how the surcharge on electricity and water consumption had been set at 17 per cent.

Giving his reaction in Parliament to last week's budget speech, Dr Sant said the budget measures would raise costs and taxation but do nothing to improve the country's competitiveness. He also referred to the proposed social pact and said its approval would have meant the start of the dismantling of social welfare in this country.

Dr Sant said at the beginning of his speech that although the Prime Minister and the Minister of Finance had changed since last year's budget, there was no renewal in the government.

The government was still failing to meet its targets, the people were being burdened with more taxes and the economy remained stagnant to the extent that Malta had slipped 13 placed in the competitiveness ranking.

According to official figures, in the first nine months of this year the economy grew by only 0.6 per cent, the smallest growth rate in the EU. The gross national product declined by 2.2 per cent during the same period even before one calculated the cost of living.

And this poor performance could no longer be blamed on external factors because competing countries were doing much better.

Between 2000 and 2003, GDP shrunk by 0.2 per cent, when the GDP of the 15 members of the EU rose by 3.7 per cent. EU forecasts showed that until 2006, Malta would have the lowest growth rate of all the member states.

During the first nine months of the year, investment in Malta increased by only 0.06 per cent over last year. Between 2002 and 2003, investment decreased by 8.9 per cent, while it grew strongly in the accession countries.

According to the Labour Force Survey, since 2001, the gainfully occupied decreased from 54.6 to 53.9 per cent of the population.

The survey also showed that during the first half of this year, jobs decreased by nearly 1,460 on the same period last year.

ETC figures, which he still viewed as suspect, showed that for 37 consecutive months, since October 2001, the number of those registering for work was over 7,000. Between October 2003 and October this year those looking for work exceeded 8,000.

According to NSO figures for the first nine months of this year, production in the manufacturing sector dropped by two per cent; net profits fell by 2.7 per cent or Lm2.5 million and wages paid by the manufacturing sector decreased by Lm13.2 million or 10 per cent.

The Economic Survey, in a survey among 431 factories, showed that sales decreased by Lm1.4 million in the first nine months.

A total of 840 jobs were shed in the food and beverages, tobacco, textiles, clothing and footwear, furniture, leather, chemical, non-metals, metals and machinery, electronic products and printing sectors. On the other hand, the rubber, transport machinery and medical and precision instruments sectors increased their employees by 375.

Manufacturing industry was suffering the lack of interest shown by the Fenech Adami and Gonzi governments through the years. The government had dismantled import protection but failed to give direction for those factories that produced for the local market and did not show enough interest in the exports sector either.

Malta Enterprise was a total failure in its first year with the lowest number of new overseas direct investment, just 14 projects, of which 10 were inherited from the MDC. Malta Enterprise had become more bureaucratic and ineffective than the MDC had ever been.

In the tourism sector, although the number of arrivals had increased by two per cent in the first nine months of the year, earnings from tourism dropped by some Lm6 million; the number of bed-nights decreased by 1.7 per cent and hotel occupancy fell.

On average, employment in tourism this year was about 9,035, a loss of 135 over last year. And outgoing MHRA president Winston Zahra had warned that a further 1,000 jobs could go in the next 18 months.

Cruise liner traffic had also nose-dived: until September there were 90,000 fewer passengers than the first nine months of 2003.

Clearly, Malta had lost its competitiveness and anybody not admitting reality would only be fooling himself.

Dr Sant said the agriculture sector was also going through difficult times. When one excluded subsidies, between 1998 and 2003 farmers' income declined by almost 18 per cent. Between 2002 and 2003, income declined by 11 per cent. Production between 1998 and 2003 dropped by 16 per cent. Worst of all, farmers now had to depend on subsidies for their sustainability. In the first nine months of this year, their profits were Lm200,000 less than in 2003.

Gozo, Dr Sant said, was suffering more than Malta. The government had demonstrated its lack of interest by discontinuing the helicopter service and it was refusing to subsidise a new service, even though a service, by helicopter or fixed-wing aircraft, could only be sustainable with a subsidy.

Over the first seven months of this year, spending by tourists in Gozo dropped by a fifth compared to the same period last year and unemployment rose to over 600. Projects proposed by the Labour government in 1998 had been shelved, including the proposed golf course, the yacht marina, casino and an industrial site for SMEs. Yet in last Wednesday's budget speech Dr Gonzi had revived all these projects and acted like they were his own.

Dr Sant said the people's quality of life was continuing to deteriorate as taxes and prices rose. Retail prices in the first 10 months of this year were up 2.8 per cent, one of the highest increases in Europe. The major contributing factors included the increase in VAT to 18 per cent, the extension of VAT to new products, the eco-tax and higher fuel prices. The people were having to pay more while earning less. Earnings from salaries and overtime this year rose by 1.1 per cent while prices rose by 2.3 per cent.

The government had long been warned that it needed to boost competitiveness, manufacturing and tourism. But it was only now that Dr Gonzi had said he wanted to create incentives for industry and tourism. This was too little, too late What the government had proposed - incentives for research - was far too little, and it was too late.

The government had also promised a Lm900,000 venture capital fund spread over three years. Yet this fund was also proposed in the budget for 2002 and nothing had been done.

The government had said it wanted to see tourism arrivals grow by 50,000 per year for three years. Yet according to the tourism plan two years ago, tourism was supposed to have grown by three per cent every year.

This was a government which announced targets and did nothing about them.

And then there were contradictions.

The government said it wanted to boost tourism promotion, but then reduced funding for this purpose by Lm500,000. It said it would give the tourism authority more funds if it met its targets. But why increase funding when targets were reached? It was when one did badly that he needed to renew his efforts.

The government claimed it wanted to promote cultural tourism, but museum prices were doubled.

Turning to industry, Dr Sant said that the budget proposals aimed at Malta regaining competitiveness would not improve the current situation enough to make a difference, particularly when seen in the context of how the government was tackling its financial deficit.

The state of government finances had become a millstone around the economy's neck and was the primary cause of unemployment, taxes and the deterioration in the quality of life. Taxation was continuing to stifle initiative while raising production costs and reducing competitiveness. At the same time government spending was continuing to rise and when taxation was not enough the government was opting for further borrowing.

The government had year after year claimed success in tackling the deficit but once the budget passed, figures cropped up to show that targets had actually not been met.

For example, on November 25, 2002 the government claimed the deficit as Lm78.5 million but soon after the new year, gave a figure which was Lm10 million higher. The same pattern was followed in subsequent years.

And government accounts could not be trusted because outstanding payments were not being shown. A 1999 promise that an accruals accounting system would be introduced had not been honoured.

In the year 2000, the deficit was 6.2 per cent of GDP, in 2001 it was 6.4 per cent, in 2002 it was 6.5 per cent and last year, excluding the shipyards restructuring, it was 6.8 per cent. For this year, the government is claiming to have reduced the figure to 5.24 per cent. One would see.

But in any case, how had this been achieved? Capital expenditure had dropped to Lm109.7 million from a projected Lm126.7 million. The best indicator of the deficit were recurrent revenue, recurrent expenditure and the debt. Over the past years revenue was not even enough to cover recurrent expenditure. In 2003 the gap between recurrent revenue and expenditure was Lm14 million. This year the gap rose to Lm38 million. Total recurrent expenditure, including interest payments this year was 9.2 per cent higher than recurrent expenditure last year. And the economy this year was expected to show growth of less than one per cent.

For next year, the government was saying that recurrent expenditure and interests would be four per cent higher than this year's. Government spending was continuing to grow and it was growing much faster than the economy.

And the public debt was rising at an alarming rate. From Lm1,213 million in 2003 debt would reach Lm1,328 million this year, up 9.5 per cent and it was projected to rise to Lm1,437 million next year, an increase of 8.2 per cent.

As a result, the tax burden was rising. This year the burden of direct and indirect taxes would reach Lm711 million, up Lm43 million over last year, or 6.4 per cent. This when the economy grew by 0.6 per cent.

Next year tax revenue would reach Lm757 million, an increase of Lm46 million on this year (6.5 per cent) when the government was projecting economic growth of 1.5 per cent.

And the government had said it would need to borrow Lm100 million next year.

Turning to the surcharge on power and water consumption, Dr Gonzi said no Maltese government could control the way international oil prices fluctuated. The government was passing the burden of the higher prices to the consumer. But up to August Dr Gonzi had said the government would absorb the rising prices at the level they were at the time. Since then the international price had gone down, but the government was imposing the burden on the consumer anyhow. The government had also initially said it would only impose a surcharge on power only. Then it had a change of heart.

One did not know how the surcharge had been calculated, and how and when it would be removed. The government had not said how the capping of the surcharge was to be imposed at the same rate for small businesses and larger ones.

How, exactly had the 17 per cent surcharge been calculated? Was it true that the surcharge did not really reflect the fluctuations in the price of refined fuel oil as bought by Enemalta?

Was it true that mistaken oil purchase decisions had been taken by Enemalta and the government was trying to hide them by raising funds from the people?

The government should assure the people by asking the Auditor General to verify how the 17 per cent surcharge was established.

Dr Sant also asked why the government had imposed the 5c increase in bus fares, which he described as substantial. This decision was unfair on those who did not have their own transport. These people would be paying double for the increase in fuel - once on power and water and then on the bus fares. The fare increase went against measures to increase the use of public transport.

Dr Sant also criticised the way kerosene prices had gone up. This, he said, was an anti-social measure that was detrimental to those with a low income The government had claimed it had to raise the price to counter abuse, yet the government had not arraigned anyone in the case raised by Labour MP Anglu Farrugia about contraband of petrol.

The government needed to control abuse, not penalise those who were doing nothing wrong. The subsidy the government would give those with a low income was not enough.

Dr Sant said the increase in excise duty on cigarettes had become practically routine. He would not go into the health aspects since the restrictions on smoking in entertainment places had already largely tackled this matter. But the constant increase in excise duties had led to a considerable increase in contraband. Revenue from duty on cigarettes this year declined by Lm2 million even though duties were raised in last year's budget.

Turning to the increased tax on outgoing travel, Dr Sant said the Maltese already paid Lm10 government tax, Lm6.52 airport tax which would rise to Lm7 in April; 90c security tax and Lm5 fuel surcharge that would rise to Lm7 next year. Now the government would introduce another Lm10 tax on all passengers, including children. A family of four going to London would pay between Lm167 and Lm171 in taxes (including Lm10.40 tax p.p. in London).

Malta now had the most expensive airport in Europe where taxes were involved, and, ironically, this was when Malta joined the EU.

The government was also imposing an excise duty of three per cent on mobile phone usage, on which VAT would also be added, meaning the new duty would actually amount to 3.5 per cent. Experience showed that this would only be the first step to further increases.

Dr Sant said mobile phones could no longer be considered luxury items for most people. This was another measure which would further raise the cost of living.

Dr Sant observed that before the water and electricity services were connected to new houses, the owners would henceforth have to produce the fiscal receipts of all those involved in the building. The opposition agreed on the need to curb tax evasion, but the government needed to be careful not to create problems, such as in the case of couples and their families who did most of the work themselves, for free. It should be made clear that such people would not be penalised.

Dr Sant said the government's measure to reduce workers' leave was a major U-turn. In the 1980s the Nationalist Party had argued that reducing workers' leave amounted to theft. Now leave was being reduced by four days this year and two days next year.

It was being claimed that this measure would raise productivity by two per cent. He felt this estimate was grossly exaggerated. This figure ignored those who worked six days a week, it ignored the self-employed and it ignored the impact there could be on sick leave.

This measure would create more social problems than it would yield economic benefits. The social policy ministry wanted workers to have more time for their families but the Prime Minister was reducing days of leave. And the Prime Minister was saying more women should go out to work.

All this tied in with what the government said, and did not say, about the social pact. Dr Sant said that he had refrained from commenting on what he was hearing so that Labour would not be accused that it wanted to hinder.

However, what the government wanted was that the burdens were to be borne by the lower and middle class. For the government, the only thing that would make Malta competitive was sacrifices by the workers through loss of overtime, fewer days of leave and who knows what else.

It was not fair for only one side to bear the sacrifices. The social pact which the government wanted amounted to the start of the dismantling of the welfare state.

All the Prime Minister promised was that the government was ready to guarantee that VAT and income tax would not be raised. Dr Gonzi knew well enough that it was not possible to increase these taxes further.

If the Prime Minister wanted to be serious on the social pact, he would have guaranteed that there would not have been increases in the price of kerosene, taxes and duties.

But Dr Gonzi was not ready to make serious promises. He just wanted the workers to surrender more while the government had complete freedom to continue with its tax and spend policies.

With such a policy, the government could not have any credibility when launching a social pact.

Dr Gonzi had also said that more would be spent on education but, Dr Sant said, the government was at the same time preparing to reduce students' stipends.

The Prime Minister had said that the capital and recurrent expenditure on education would be Lm13 million more. This figure was dubious because it appeared that the government was including expenditure related to various education entities which earlier were not part of the Ministry of Education.

But even if these figures were analysed, one could see there was no special commitment for education: the expenditure for education included Lm2.4 million in teachers' salaries and students' stipends which the government has still not paid this year. There was an increase of Lm1.2 million to the university, which would not be enough to make good for the losses which it incurred during the past years and which were close to Lm2 million.

Dr Sant observed that this year's capital expenditure on education was only Lm2 million of the projected Lm7.4 million.

The government's commitment was only to prestigious projects like Dar Malta in Brussels, where an expenditure of Lm3 million, instead of Lm10 million, would have sufficed.

The same would be repeated next year: a sum of Lm1.5 million have been earmarked in Foreign Ministry estimates for the Commonwealth Heads of Government Meeting but observers had said it would be costing more than that.

While the heads of Commonwealth countries were welcome, at a time when the government has its back to the wall because of financial constraints did it make sense to fork out such a sum?

Dr Sant reiterated his criticism over the agreement reached with Skanska on the building of the new hospital. At the same time, the health sector was in shambles. Last year the government promised that the rise in VAT would go towards the health sector. It was another forgotten promise.

Even The Sunday Times, a newspaper which did not have Socialist leanings, published survey results which showed scepticism on whether the budget would meet its objectives.

The government's credibility also depended on its seriousness with no one being given unfair advantage.

The opposition had mentioned various cases such as how an Iranian shipping line was attracted to Malta, consultancy work awarded to the Prime Minister's cousins, and abuses in the Foundation for Tomorrow's Schools.

But there were other cases, such as the way how the contract for the EU accession celebrations was awarded to Where's Everybody. It was strange how a call for offers was made through a departmental call for tenders when everybody knew that it would cost hundreds of thousands of liri

Where's Everybody, the eventual winners, had undertaken to import a German team that would link up the light show to the European Broadcasting Union's broadcast.

The call for tenders had been issued by the then Minister for Youth and the Arts Jesmond Mugliett, who had received a letter from Schwanstein Entertainment CEO Stephan Reichenberger offering the light shows. This offer had ended up being part of the Where's Everybody tender and had been instrumental in the award.

Dr Sant said that when things were not done transparently and fairly, when people thrived on their friendships there could be no credibility for the government.

The Prime Minister was now saying he wanted to rationalise the plethora of foundations, authorities and other corporations that had been set up to do what government departments could have done more cheaply. The opposition had long been saying that these institutions had been set up to employ friends in inner circles.

Dr Sant tabled a letter sent by Raymond Fenech, chairman of the Foundation for Tomorrow's Schools, to the Permanent Secretary at the Ministry of Finance on June 15, 2004, through Education Minister Louis Galea.

The letter said that the recruitment of Engineer Emmanuel A. Farrugia would ensure that schools would be built not only on time, up to standard and within budget but also at substantial savings. The foundation's board was recommending the engagement of Eng. Farrugia as Capital Projects Director for three years with effect from September 2003.

Dr Sant recalled that the opposition had in the past strongly criticised the fact that Mr Farrugia was a member of a committee to adjudicate a contract worth hundreds of thousands of liri, when he was also a shareholder in a company bidding for the same contract.

When Labour MP Carmelo Abela had asked in Parliament for the names of FTS employees, Mr Farrugia's name had not been mentioned. Other engineers with the FTS were paid Lm12,000, but Mr Farrugia, a relative of Minister Louis Galea, was to be given a three-year contract of Lm30,000 a year with additional benefits to the tune of Lm6,000 a year.

How could the government expect credibility when certain people were kept free of the hardships being shouldered by most of the people?

Setting out a series of measures that needed to be taken with a sense of government leadership and direction, Dr Sant said government accounts should be precise and show the true financial situation, with the introduction of an accruals system. The government should cut its non-welfare spending by three per cent every year, leading to savings of some Lm60 million by the third year.

The government should admit that one of the reasons why Malta had lost competitiveness was the fact that over the past 10 years the effective rate of exchange of the Maltese lira had appreciated by ten per cent at a time when the economy was doing badly. The necessary downward adjustment of the value of the lira should be done gradually within a reasonable timeframe that would cater for effects on the cost of living.

The government should cut down heavily on the operations of several organisations that had been set up in recent years but cost huge amounts of money without yielding results, chief among them Mepa and the FTS. It should launch a regional project for economic development in the Grand Harbour area and Gozo.

In concert with local councils the government should set up programmes to enhance the urban environment and create special tourist zones in Sliema/St Julian's, St Paul's Bay, Marsascala, Marsaxlokk and Birzebbuga.

The government should create a serious incentives package to attract investment, especially in the manufacturing industry. Such incentives should be tailor-made to curb costs while promoting new jobs. Other incentives should be given on profits to encourage new investment.

One must plan seriously and contain government costs and eventually taxes, while promoting the welfare state.

Through such a project, a wide alliance could be forged with the workers, employees, the middle class and old-aged pensioners who were realising that current government policies were creating two nations - the one on the upper echelon and the other formed of those who had to bear all the burdens.