After hearing the Budget Speech and the comments by the Leader of the Opposition and the Prime Minister, I tried to reconcile the two contrasting views: one which states that the economy is expanding and the other which stressed that people are worse off.

The solution is very simple: the official economy is expanding while the black economy is disappearing. This would imply that Government statistics are correct in showing prosperity. At the same time, people tend to feel worse off than before.

In the black economy, Lm1 is worth 100 cents. If the same cash register must pay 18 per cent VAT, 35 per cent income tax and other surcharges, the same turnover would result in lower liquidity and less purchasing power. People feel that they are worse off because the State is increasing its chunk.

The introduction of VAT, anti-evasion measures and the repatriation of undeclared foreign funds have started a process of shifting unofficial sources into the official ones. Government is collecting more income tax and VAT even though the rates have not changed. Capital taxes went up from Lm1.9 million to Lm4 million in four years, representing an average increase of 30 per cent a year.

The construction industry with VAT, capital gains tax, and stamp duty is heavily taxed. Yet, official figures show that it continued to expand. However, when one considers the number of contracts published or the number of MEPA permits, it has remained relatively stable. Only, a larger share is going into the official economy.

This type of economic expansion has to be monitored: it is temporary. More controls mean that more money flows out of the subterranean economy. The black economy has acted as a "foreign" injection to the Maltese official economy. It is time to think of alternatives because there is a limit: one should not be happy because the State is draining all the oil from the black economy. Soon, it will create a problem similar to that when all the privatisations are exhausted.