The government did its utmost to leave more money in people's pockets, Prime Minister Lawrence Gonzi said yesterday in his first comments after a marathon budget speech.

Dr Gonzi told a news conference that the budget was mapped out responsibly while drawing up a series of incentives that would benefit the environment. Carefully weighing his words, the Prime Minister skirted any reference to the recently-announced water and electricity tariffs, which drew a chorus of disapproval from the social partners.

He reminded reporters that this was the third budget that revised the income tax bands, evidently trying to cushion the fact that the electoral pledge to cut the maximum income tax rate by 10 per cent has not yet been honoured.

"We're doing things responsibly while warding off the jitters coming from overseas... and stressing the importance of having sound finances."

Dr Gonzi insisted that the shipyards and the energy subsidies were largely to blame for the fact that the deficit projections were off target this year. He denied a reporter's claims that the government had engaged several new employees on the eve of the election, which could have cost the public finances dear.

The Prime Minister referred to the Autumn Economic Forecasts issued by the European Commission in Brussels yesterday morning, which showed that even though Malta's economy will also slow down next year it is not expected to go into a recession, as many of the other euro area member states are expected to do.

On the other hand, Finance Minister Tonio Fenech said that the €4 weekly cost-of-living increase would not erode the country's competitiveness. EU statistics show that the two per cent increases in wages recorded last year had helped to ensure Malta remained competitive and sustainable.

He insisted that during the talks, the employers' bodies were kept informed of the government's intentions and did not object to the raises. On the contrary, the government turned down further increases requested by the unions and made up for the shortfall through a reduction in income tax. Furthermore, he pointed out that the government had drawn up a series of incentives in the budget which would incentivise business, SMEs and industry.