The government had several reservations over the report on the state of the economy drawn up by Joseph Falzon for the GRTU, particularly over the methodology used, Parliamentary Secretary Tonio Fenech told Parliament.

He said the reservations stemmed from the fact that the reference year was the year 2000, which was an exceptional year for imports and exports by STMicroelectronics and could therefore not be used to compare the performance of the whole manufacturing industry.

Furthermore, in making its comparisons the report ignored the fact that between 2000 and 2005 the country was preparing to join the EU and the economy was being extensively restructured. It assumed there was no process of change. Still, the report included positive elements - which the opposition did not mention. It showed that despite the difficulties which it went through because of the international recession following the year 2000, the economy still managed to restructure and was now growing at a faster rate.

The report insisted that the value of exports of both products and services had declined. This, Mr Fenech said, was not true. In the past 16 years this only happened in three or four years. There was an increase in all the other years.

It also said that exports as a percentage of GDP had dropped. Yet the statistics used in the report itself showed the contrary. In 1990, exports were 83 per cent of GDP, in 2000 they were 91 per cent and in 2004, 96 per cent. The percentage dropped to 88 per cent in 2005 - the reference year for this report - because ST was affected by international prices in the first six months of that year.

Mr Fenech said another shortcoming was that the report said that the contribution of manufacturing to GDP was declining. Apart from the fact that this was not the case, the report did not explain its conclusions. Nothing was said about restructuring and diversification in the manufacturing sector, the switch from textiles to pharmaceuticals which had a higher added value, and the fact that the year 2000 was extraordinary for ST.

The Falzon report said that jobs in manufacturing had dropped and there was little chance of a recovery. This was probably true, but the gainfully occupied population had still increased because people transferred to other sectors in the economy such as back office operations and the gaming industry which employed over 600 people.

The report also insisted that the economy was becoming less open. Effectively it did not say how this conclusion was being reached but this did not result from official figures and reports held by the government. If the year 2000 was taken out of the equation the figures showed that the economy actually opened up.

Mr Fenech said the report seemed to imply that wage increases were making the country less competitive. Yet there was nothing wrong with wage increases as long as they were backed by productivity gains. Productivity in the manufacturing sector between 1996 and 2005 grew by nearly 15 per cent, matching the wage increases given. In the hotels and restaurants sector, productivity was up 33 per cent while wages grew by 25 per cent. These two examples raised a lot of questions about the analysis.

Mr Fenech said the report had been discussed with the GRTU and a number of measures were taken to help manufacturing and tourism become more competitive.

Indeed, the GRTU had been among those organisations that had welcomed the budget.

Reacting to various points about the economy made by the opposition in the debate, Mr Fenech said that this year up to August exports and industrial orders had increased and industrial imports were also up.

The business and consumer survey results for October 2006 showed that production expectations were positive. Orders had shot up and there could actually be problems with regard to stocks of finished products. Production trends were positive and the same could be said for export orders.

GDP rose by 2.6 per cent in the first half of this year, foreign investment increased to a record Lm312 million, imports up to August had increased by 15.5 per cent while exports increased by 12.4 per cent.

The growth in wages was evidenced by the fact that tax revenue on the basis of FSS returns grew by Lm11.4 million between January and September , with the declared income having risen from Lm220 million to Lm250 million.

Companies' provisional tax payments increased by Lm7.5 million. The property sector left Lm5 million more in capital gains tax and tax on bank deposits increased by Lm1.3 million.

The number of employers increased by 488 from January to July. The average number of new tax-paying employees increased by over 5,177. The opposition had questioned the sustainability of government finances, saying the country this year had depended on one-off sales of properties to reduce the deficit. Yet the European Commission two days ago said that Malta's finances were sustainable and, after removing the one-offs, found that both in 2007 and 2008 Malta's deficit would remain under three per cent.

Mr Fenech said that the opposition leader accused the Prime Minister of spending, in three years, Lm3 million on consultants, Lm13 million on cars, petrol and repairs and over Lm1 million on parties. Yet in 1997 alone , Labour spent Lm5 million on cars, Lm1 million in travel, and Lm350,000 in receptions.

Referring to the accusation that the budget did not benefit low-income workers, Mr Fenech said one could not cut tax for those who did not pay any. Indeed, as a result of this budget, more people would not pay any tax. But this budget was not just about tax relief. More low-income families would not be paying the power surcharge and supplementary assistance had been increased by 14 per cent, among other measures.

Earlier, opposition finance spokesman Charles Mangion said this government's main boast in the budget was that public finances were on a firm footing. Even if official figures were to be trusted they still called into question the sustainability of public finances.

According to the estimates for 2006 the government had a revenue of Lm20 million from the sale of property. If this was considered as a one-off, the deficit would have exceeded the three per cent threshold.

The national debt had dropped marginally this year but the government's borrowing requirement would rise again next year - to Lm50 million.

Some of the 2007 projections raised questions. For example, excise duty from kerosene would rise by Lm10 million. Why?

How would revenue from gaming taxes rise by Lm6 million when there had been a decline in the past few years?

Why was revenue from vehicle registration projected to rise by Lm3.5 million after having been constant since 2004?

If consumption was projected to rise, why wasn't there a corresponding projected increase in VAT revenue?

The European Commission had acknowledged that the Maltese economy had grown, but it noted that growth was the result of a domestically-led recovery rather than exports, which was very worrying.

One would therefore have expected a stronger focus on exports in this budget.

Yet, even in areas which were said to be doing well, such as film-making, the subsidy had been cut to Lm1 million from Lm1.5 million. The incentives for industry in Gozo were down by half and the Better Regulation Unit, which was meant to cut bureaucracy, had practically evaporated. Promises on the venture capital fund had still not materialised.

The government said foreign investment was reaching Lm1 million per day, yet according to the Economic Survey, in the first nine months of the year, investment in manufacturing was just Lm31 million and investment growth was only in STMicroelectronics and in, wonder of wonders, textiles, which, according to minister Austin Gatt, had no future. And the sale of Maltacom to foreigners was also considered as investment, this when Malta was selling one of its prime assets.

Labour MP Helena Dalli said several sections of the public sector were lacking human resources and, at the same time, valid people were being sidelined because of their political beliefs.

The government in a year had increased its spending in four ministries by Lm2.6 million on consultants and by Lm600,000 on travel. There was also excessive spending on car rentals and abuse in the use of fuel.

The Auditor General had observed that while there was insufficient funding for certain medicines, the secretariat for the elderly lacked proper control over how money was spent.

Mrs Dalli said the public service needed to be economically viable with the least possible burden on the people's taxes. Over a period of nearly 20 years, the Nationalist government had not managed to balance one budget. Yet despite the squandering and the heavier tax burden the people were not better off and government services left much to be desired.

The Nationalist government had also committed a number of injustices, especially in the way promotions were made. A new Labour government would see that these were remedied.

Turning to the shipyard, Mrs Dalli said that it seemed that for the management and the government, the workers were to blame for anything that went wrong. The government still did not believe that the shipyard was necessary for the country and it never had any serious plan to put it back on its feet. As a result many trained workers had been lost, many under the early retirement schemes. Then foreign labour was imported.

The financial situation of the shipyards should be addressed at all levels because there were big discrepancies between what was spent on certain people at management level and the workers, who were the only ones affected by the restructuring.

Labour MP Joe Abela said it was disappointing that very little reference was made in the budget to the cooperatives sector and that cooperatives were not included within the sector of small businesses. There were 59 cooperatives in Malta from 40 different sectors, including the civil and social sectors. They had 4,652 members with a turnover of around Lm25 million. It made sense for the contribution of such cooperatives to be better acknowledged.

Farmers used to pay only half their national insurance but they were now having to pay it all. And although they were promised an insurance by the government, this had still not yet come into effect. The Fishermen's Cooperative complained that its members were suffering unfair competition because while fishermen in other countries did not pay duty on fuel, they were.

Nationalist MP Antoine Mifsud Bonnici said the government was putting the people at the centre of its decision-making. As a result this government was taking family-friendly measures. In this budget, apart from tax relief, there were measures to help families who sent their children to private schools and measures to promote women's participation in society.

The government was also continuing to introduce services for the elderly, whether living in institutions or in the community.

Dr Mifsud Bonnici said the Home Help service had been a success, but reform was needed so that more social assistants could be available to help the elderly in the community. The Care Allowance should be revised to encourage more people to look after their parents.

Dr Mifsud Bonnici paid tribute to the church for opening the first homes for the elderly, and said he looked forward to legislation which would regulate the homes of the elderly run by the government, the church and the private sector. It was well known that many of the church-run homes were making financial losses, and this was something which also needed to be discussed with the government. Public-private partnerships needed to be implemented for the benefit of more elderly people who wanted to live in an institution.

Silvio Parnis (MLP) said the investment being made in St Vincent de Paul Home for the elderly was welcome, although one should question whether it was wise to spend so much on a single ward for 120 when the funds could be used to benefit more people.

Furthermore, those who cared for elderly people in their own homes were receiving only a meagre income of some Lm135 a month. The budget did not adequately address this sort of social problem.

Mr Parnis also spoke on low-income people and said computer facilities in schools should be made available to them in the evenings.

Michael Gonzi (PN) welcomed the fact that the seat of the Parliamentary Assembly of the Mediterranean would be at Spinola Palace, saying that the fact that the assembly would be headquartered in Malta was prestigious for the Maltese Parliament.

Nationalist MP Joe Falzon said this budget reaped the fruit of the sacrifices made in the past, but the government was careful that the budget measures promoted growth and competitiveness.

Sustained economic growth remained the challenge facing the country because only in this way could wealth be generated and solidarity strengthened.

Franco Galea (PN) highlighted economic progress but expressed concern over the state of tourism. He said it was a mistake to have hotels filling up with students to the detriment of other markets.

He suggested that Malta could team up with Cyprus to insist with the EU that there should be some support for island tourism since it depended almost exclusively on air travel.

Mr Galea said the media, especially English language media, should be careful about criticising the country because the comments were read far and wide and could deter investment.