Alternattiva Demokratika's chairman Harry Vassallo characterised the budget as one with "a limited vision for the immense economic challenges the country faces".

He said the reduction of the deficit to Lm76 million, as the government had planned, is "something that should be commended". However, AD was concerned with the economic impact of this reduction.

From National Statistics Office figures published yesterday, it was clear that even the government's modest target of two per cent growth for 2005 was not being achieved. Worse still, the growth was only attributable to an extraordinary increase in "inventories", which could mean that companies were producing but stocking up due to diminishing demand for their products.

AD said nothing concrete was announced for small and medium-sized enterprises.

It would have preferred had the government given a tax break on labour, rather than on capital gains, which would have ensured a wider and fairer reduction of the tax burden.

The 50c cost of living increase would only compensate those whose energy bill was just Lm75 per annum and was only "partial compensation" for those who paid more.

While the incentives for people to invest in photovoltaic cells were encouraging, Prime Minister Lawrence Gonzi's categorical exclusion of the viability of wind and solar farms was disappointing, particularly in the light of the serious energy crisis facing the country.

His comments showed "a serious lack of long-term vision and planning," Dr Vassallo said.

A 'ceremonial exercise'

The General Workers' Union's secretary general, Tony Zarb, deems the budget for 2006 no more than a "ceremonial exercise".

He said the initiatives to generate employment and attract new investment were irrelevant for the creation of the sort of work the country really needed.

Mr Zarb said the government not only ignored proposals made by the GWU but also overlooked completely the social partners' views and reduced social dialogue into a fictitious process.

Mr Zarb said the compensation given to make good for burdens on workers and pensioners was insignificant.

The compensation for the increase in the electricity surcharge and petrol prices was also inadequate because it does not make good for related increases on services and products. However, the union noted that the government had accepted its request to give full compensation to pensioners.

Tax burdens on workers and the economy were still there and were resulting in a lack of investment to generate work. The government's projection of a 1.1 per cent economic growth next year was much lower than that of competing countries that joined the EU together with Malta.

The GWU was expecting the government to give workers respite from the burden of taxes they were carrying by changing the tax bands but this issue was not addressed.

Mr Zarb said inflation would go over three per cent next year and this would increase the burden on workers and pensioners while the country's competitiveness on the international market would continue decreasing.

The union's national council will meet to discuss the budget tomorrow.

'Steady as she goes'

The director general of the Malta Chamber of Small and Medium Enterprises - GRTU, Vince Farrugia, said the government did well to produce a "neutral" budget after last week's explosion that shocked most households and businesses as regards fuel and electricity tariffs.

The business community and people in general were not prepared for another shock, Mr Farrugia maintained.

The GRTU would have loved to see the implementation of its major proposal - the beginning of the relaxation of tax bands.

"But even though this has not happened, we consider the budget to be positive as it is introducing new measures, which we have proposed, including that in relation to taxation on property and greater attention and funding in the form of tax credits for small businesses."

Mr Farrugia said the government was sending a clear message: "Steady as she goes".

Country on way 'to acquire financial flexibility'

The budget was part of a jigsaw puzzle that would take shape over a number of years in a long-term socio-economic plan, the Union Haddiema Maghqudin's general secretary Gejtu Vella said.

The deficit next year was expected to go below three per cent of the gross domestic product. Thus, the country would acquire financial flexibility and this could act as a cushion when faced with an eventuality beyond one's control, like the increasing international oil prices.

Mr Vella described as positive the fact that the government accepted the union's proposals to give employees and pensioners a compensation for the increase in electricity bills.

He said the UHM had insisted the government would not introduce new burdens and this had not happened.

Another positive step was the fact that the government was taking a number of initiatives to increase economic growth and create employment. Mr Vella noted the increase in economic growth in the third quarter of this year, adding that despite difficulties the economy continued to grow.

He said the union continues to insist that the government does its utmost to get the best value for its money and sets up efficient structures to fight tax evasion and the abuse of social services.

Industry worried about competitiveness

The Federation of Industry is satisfied that the government seems determined to tackle those issues that need to be addressed such as pensions, the health sector, education and the environment.

"Now, however," FOI president Adrian Bajada said, "we will have to see how determined the government will be in seeing the measures through."

On the issue of the cost of living increase, Mr Bajada said the federation was very worried about the impact this will have on the country, already struggling in the competitiveness rating. Tied with this, there is the issue of the raising of the power surcharge capping to Lm21,000. A simple calculation will show that a company that spends Lm38,180 on electricity will be paying Lm21,000 in surcharge which means that a large number of companies will be hit by this measure.

"All this will have a bearing on the country's competitiveness and we are very concerned about this."

Furthermore, he continued, one has to consider the low rate of growth registered this year and the even lower rate projected for next year, 1.7 per cent and 1.1 per cent respectively. When compared with the rate of growth of the EU's two per cent and that of the new accession countries like Malta, which stand at four per cent, then it becomes evident that the country is struggling.

Budget 'favourable' to tourism

Overall, the Malta Hotels and Restaurants Association considered the budget to be favourable to tourism and was glad to see that the industry was being considered as one of the main pillars of the Maltese economy.

Its president, Justin Zammit Tabona, said the impact of the immediate increase of water and electricity surcharge on hotels cannot be underestimated.

Most hotels would have entered into tour operator contracts, having guaranteed prices for the next 12 months, and "they cannot just turn off the lights".

In an ideal world, hotels would start to impose fuel surcharges like airlines but the industry does not work that way, Mr Zammit Tabona said.

The MHRA expressed satisfaction at the fact that the savings (Lm600,000) from the restructuring of the Malta Tourism Authority would be allocated to its marketing effort. It was "extremely glad" to see an allocation of Lm500,000 for the re-branding of Malta plus a fund of Lm150,000 for the management of six tourism zones while Heritage Malta would be given Lm2.3 million and the ports in Mgarr and Cirkewwa would soon be finalised.

"The government's comments on low-cost airlines were favourably received and we look forward to finding a system to bring them over in the near future", Mr Zammit Tabona said.

Employers express cautious optimism

The director general of the Malta Employers Association, Joseph Farrugia, sounded a cautiously optimistic note.

"This year's budget marks a very important moment," he said, emphasising his hope that the government, together with the social partners, would be able to reach the goals set.

As the Prime Minister himself remarked during his speech, however, moderate positive economic trends this year were co-existing with serious challenges, Mr Farrugia said.

"We also have to look into the effects of the cost of living adjustment which not only reflects the increase in the cost of living but also the hikes introduced in reaction to the increase in the price of oil.

"The MEA has always believed that increases should be tied to corresponding increases in productivity and not increases in prices alone."

In a similar fashion to the FOI, Mr Farrugia commended the fact that the government was reaching its fiscal targets, adding his hope that the social partners and the government would keep the pace over the coming year.

The commitment to keep investing in the education, environment, health and pension reforms was also positive, although on the latter the details still needed to be studied, he said.

'Generally positive'

Chamber of Commerce president Louis Apap Bologna said that generally the budget was positive in that it marked a shift which shows that the country is really coming to terms with the realities of globalisation.

The fact that the government had managed to achieve the fiscal deficit goals targeted last year was positive, he said.

He also commented positively on the privatisation measures and the amount envisaged to be raised from the sale of assets (Lm136 million).

He commended the measures announced in support of SMEs, the tourism and manufacturing industries, the fiscal benefits targeting sectors of the economy and other measures aimed at boosting innovation.

However, the chamber, like the other employers, was concerned about the cost of living increase, primarily because it was not tied to productivity and because it would continue to undermine competitiveness.

"We hope the government will try to counterbalance this with other measures which enhance competitiveness such as making the public service lighter."

The wage rise further intensified the blow already suffered by the private sector in terms of increased costs of fuel and electricity, he said.

'Best vision in years'

Yesterday's budget had the best vision that the country has seen in the past few years, the president of the Confederation of Malta Trade Unions, John Bencini, said.

However, the budget was overshadowed by the increase in electricity bills because of the increase in international oil prices, he noted.

He commented positively on the fact that the deficit had been brought down to under three per cent of the gross domestic product, which brought the country closer to the introduction of the euro in 2008.

"We notice with satisfaction that the government is giving importance to the economy and the growth rate has been boosted."

Mr Bencini said the unions had been insisting on the need to curb tax abuse and the fact that more tax was being collected could mean that fewer people were evading tax.

The Lm26 a year granted to make good for the increase in oil prices might be enough for those who receive low bills but most people would experience reduced spending power, he said.

On the other hand, a higher increase could have meant problems for businesses to pay their employees.

Another positive, he said, was that the expenditure on education and the environment had gone up.

The fact that the pre-budget document had been made available to the people, instead of only the Malta Council for Social and Economic Development, had had a positive effect.