Malta is facing one of the most serious economic challenges in the past three decades. A negative GDP growth, combined with inflation rates that are substantially higher than that experienced in other Euro zone states, threaten the present and future prosperity of many sectors of our society - from families to the business community, from young people looking for their first job opportunity to pensioners struggling to make ends meet.

What is even more worrying for Malta is the fact that this negative indicator is not a one-off statistical blip but is steadily developing into a trend.

At the Labour Party national conference on the cost of living, the simple message that came from the statistics discussed is that Malta indeed has an inflation crisis, and that the most important items that are creating upside pressures are energy and food prices.

There is no doubt that Malta's economy is a very open economy and almost totally dependant on import and export. To some extent, imported inflation is inevitable. But we need to be honest with ourselves and with our people and ask whether all the present inflation is indeed imported.

It is a fact that in the latter part of 2008 the price of crude oil and its by-products started to fall dramatically because of the global recession that was dampening demand. Yet, in Malta the Nationalist government persisted in increasing the prices for energy services to unprecedented levels that had no relationship with falling oil prices.

The universal condemnations of these measures were ignored by the Nationalist government. The consequences of this insensitive attitude were, in my opinion, an increase in operating costs for all local businesses at a time when both local and foreign demand for our goods and services was falling significantly; a deterioration in local consumers' confidence levels that in turn brought about a fall in demand for goods and services; and a steady erosion in the quality of life of most families who have to spend more of their hard earned income simply to survive the current recession. This in turn is hindering savings that ultimately finance investments.

I believe that our competitiveness is also being negatively affected by insufficient public and private productive investment and persisting bureaucracy that shackles many entrepreneurs, especially those managing small businesses.

In the long term we are becoming less attractive as a destination for direct foreign investment and we are courting industrial relations unrest as the tripartite pact between unions, employers and the state has started to crumble. If we add to these weaknesses up, the inability of the government to manage its finances more effectively, and its lack of real commitment to manage inflation successfully, then we are indeed facing an uphill struggle to move out of this recession as fast as we can.

If the government wants to enjoy the trust of employers and workers it needs to show that it is not only capable of addressing those inflationary forces that are not imported, but also committed to not being itself the instigator of locally generated inflation. This can be achieved if the government does not inflate the prices and the fees it charges for its services. It can also be achieved if the government implements inflation lowering decisions that are within its control - like the lowering of VAT on tourism related services, as has been carried out in other countries including France.

It is of paramount importance that the pricing policy for energy services is not only transparent and open to scrutiny, but reflects indeed movements in international prices of energy commodities. I am against providing in the long-term services at below their basic cost.

But I am equally against passing on the cost of the management inefficiencies of the energy services providers to consumers. This applies also to the provision of bottled gas services, which are is now in the hands of a private monopoly. I expect the Malta Resources Authority to put the interest of consumers in the highest position in its criteria for approving energy services prices. So far I have been bitterly disappointed.

It also goes without saying that government is expected not to use the provision of energy services to local consumers as a means of imposing tax by stealth. The Finance Minister recently announced that Malta has the lowest rate of income tax in the EU, thereby implying that 'we have never had it so good'.

This statement just rubs salt in the sore wounds of those families and businesses that have to cope with government induced increases in prices, and public services that represent very poor value for the money they pay in taxes. Just look at our road network.

The reaction of the government to the proposals made by the Opposition Leader at the national conference was childish. Labour's proposals are so good that the government tried to take credit for them by stating that they were already included in its electoral manifesto and that most of them are being implemented. It's a symptom of the illness called intellectual snobbery that has irreversibly taken over the Prime Minister and his government ministers.

Dr Gavin Gulia is the Opposition's Main Spokesman on the Economy and the Self-Employed