Maltese families are suffering the consequences of the fact that Prime Minister Lawrence Gonzi has lost control of the country's finances, according to the Labour Party.

The party pointed out that, recently, Finance Minister Tonio Fenech said he could not guarantee Malta's deficit would fall below three per cent by next year as requested by the European Commission.

By making this statement Mr Fenech confirmed the government had lost control over finances, Labour spokesman on finance Charles Mangion said.

He said that last year the deficit had exploded to 4.7 per cent of the gross domestic product and, as a result, the Commission had initiated proceedings against Malta.

"While the deficit continues to grow the money is not going towards capital investment that generates employment but is being squandered without leading to any economic benefits," he said.

The government was reducing capital investment despite promising to increase this expenditure by 25 per cent this year, he said.

However, last year, capital investment fell by 15 per cent and in the first five months of this year it decreased by a further eight per cent.

Recent figures issued by the National Statistics Office showed that the government deficit rose by €58.6 million, to stand at €294.4 million, between January and May when compared to the same period last year.

This increase was brought about by a €54.3 million rise in expenses, up from €1,051.4 million, mainly because of a €20.9 million hike in social security benefits, a €18.9 million increase in the shipyards' voluntary retirement scheme and an €11.9 million rise in the cost of medicines and surgical material, according to the NSO.

Brussels has given Malta until the beginning of January to spell out the measures it would be taking to comply with its recommendations. It is insisting on the 2010 deadline for Malta to scale down its deficit to under three per cent of GDP.