ALEX SALMOND'S grin says it all. Pacing around his Holyrood office, the First Minister is chatting about Labour's donation crisis and discussing Gordon Brown's troubled start as prime minister. He is bearing it bravely.

His own government, by contrast, is enjoying a prolonged honeymoon, despite the absence of a majority, opposition goodwill or support from the tabloid media.

He also knows how desperate his political opponents are to damage him. Was he aware his rivals spread rumours about his alcohol intake during the election? "Yes, but that's because the lies about my gambling didn't work in 1999," he said.

In the seven months since replacing Jack McConnell as first minister, Salmond has established himself as Scotland's most prominent politician. His ministers have also got on with the business of government: announcing a budget and announcing legislation.

However, the budget's fine detail has left him open to the accusation that his government is handing out cash to well-heeled groups, notably business people and wealthy householders, while cutting programmes that serve the needy.

Cash for educational maintenance allowances, which gives pupils from poorer backgrounds cash to stay on at school, is being slashed. Next year's housing budget is also being cut.

Professor David Bell, adviser to Holyrood's finance committee, has also claimed that the government's freeze on council tax benefits the well-off more than the poor, an argument Salmond rejects.

"When David Bell was the adviser to the Burt Commission he said exactly the opposite. The people most exposed to the council tax are the people who are on modest or below-average earnings. I think he should look again at the analysis."

Salmond says his government's approach to tackling disadvantage will become clear next month when he publishes an anti-poverty strategy: "Members of the Cabinet discussed the approach to tackling poverty, deprivation and disadvantage at a meeting last week, and agreed that we expect to be able to articulate a cross-governmental approach to tackling poverty in the new year."

He also believes replacing the council tax with an income-based alternative will boost the incomes of hard-working families, but admits the scheme will be difficult to push through in the current political climate.

"If the legislation was introduced now, the Liberals would be tricky: nominally in support, but they would find 100 reasons not to vote for it. I am assuming that their mood and temper will improve as the parliament goes on," Salmond said.

The SNP-LibDem differences over local income tax are based on detail, rather than principle. The Nationalists want the local authority rate to be set nationally, while the Liberals insist councils should possess this power.

But Salmond is willing to compromise. On whether he has an open mind on allowing councils to set their own rate in the long-term, he said: "In the long-term there is obviously a possibility that might be an area of discussion. The consultation document is there in order to explore areas of agreement."

This is the only olive branch Salmond extends to the LibDems, whom he believes have reacted badly to being ejected from government.

He says of their hostility to the SNP government: "People talk about how Labour have not adjusted to losing power but, if anything, the Liberals are worse. They have absolutely no reason to behave as they are currently behaving on most issues. It is totally and utterly irrational."

But despite the endless debates on the government's budget and priorities, there is a feeling that Scottish politics has been put in cold storage while Wendy Alexander sorts out her well-reported problems.

Salmond believes she should step aside while the Electoral Commission investigates the dodgy donation to her leadership campaign, but says the row is part of a wider Labour problem.

"For a number of years, they have been ignoring their own legislation. I believe they have been selling titles. Hell mend them," he said.

A way of cleaning up politics north of the Border, he says, is for parties to fund parliament campaigns with Scottish cash: "Scottish elections at Holyrood should be financed by permissible donors in Scotland."

However, one of the reasons parties always seem reluctant to criticise their rivals' donations is the fear they too could get embroiled in similar rows.

The SNP, as revealed last week, bankrolled their successful Holyrood campaign with a few large donations from business supporters such as bus tycoon Brian Souter.

Souter's company, Stagecoach, is now after a £3 million subsidy for a full-time hovercraft service to Portobello. What does the First Minister think about its case for funding?

"They'll get treated in just the same way as any other company," he insisted.

On whether he has spoken to Souter about the hovercraft project, he says. "To my memory, I have never had a conversation with Brian about hovercrafts, although I did speak to a guy about the delay in getting the trial."

Independence supporter George Mathewson has also landed two jobs since the Nationalists's election win. Is this not open to criticism?

"I think it would be extremely difficult to describe Sir George Mathewson as a crony. The person you are describing is of exceptional ability. He has been appointed to two unpaid, non-remunerated jobs."

Salmond remains unscathed after nearly seven months of government, but he is experienced enough to know how quickly the political weather can change.

His immediate priorities are clear: a speech next week on the EU; ensure the safe passage of the budget; and govern Scotland in a way that delivers an independence referendum in 2010.

Part of the plan, SNP insiders say, includes Wendy Alexander staying as Labour's leader. Does the first minister think she has done well so far?

"I think she is playing a blinder," he says, before unleashing another grin.