Medicine prices found to be too high would have to be reduced, with a voluntary mechanism introduced in 2006 turned into a mandatory one unless an alternative system was introduced.

Finance Minister Tonio Fenech said the voluntary mechanism did not have the desired results, pointing out that surveys would continue to be carried out, but a more efficient and effective mechanism would be introduced.

In November 2006 the government had set up a Working Committee on the Pricing of Medicinal Products to devise a system that would ensure medicine prices were fair, without having to resort to the old price control systems. Importers were asked to lower the prices of medicines found to be higher than the average in a number of countries, unless they could justify the present price level.

"We are committed towards doing all that is possible, and that makes sense in the context of a free and competitive market, to keep the inflation in our country under control," Mr Fenech said yesterday. He said this was necessary to safeguard Malta's monetary value and standard of living and maintain the country's competitive edge.

The Consumer and Competition Division would be reformed and a Maltese Fair Trade Authority set up.

As announced by Mr Fenech last month, the government would be setting up a new consumer protection agency which would have a price watch function, apart from an educational role.

The agency had been promised by the Nationalist Party in its electoral manifesto to monitor the prices of essential items, like food and medicines, with the aim of fighting an increased cost of living.

A College of Regulators, made up of all regulators and representatives of the Malta Council for Economic and Social Development, would be set up. The Finance Ministry was preparing a report on the causes and trends in the prices of importation, exportation, assets and retail products and services, which was also looking at how these were affecting consumers and firms. The government was also looking at the operations of the vegetable market, since the prices of fruits and vegetables were not responding to international trends because of different practices.