Party leaders have traded insults during a bad-tempered exchange at First Minister's Questions as Alex Salmond admitted his government's budget was "under severe attack".
Mr Salmond branded Labour the "new Tory party of Scotland" in the wake of Johann Lamont's declaration that she wanted to end the "something for nothing society".
Ms Lamont hit back by accusing the First Minister of being "in denial about what is happening in the real Scotland" and labellling him a "fantasist".
"He talks about securing public services and that we have free everything," she said. "He has already brought in £2.7 billion-worth of cuts and the poor and the vulnerable and hard-working families in this country have noticed."
She added that pensioners who need help to look after themselves were "suffering the indignity of just 15 minutes of care visits in a day" and "thousands of working-class students" had had £900 a year cut from their bursaries.
"Those people see his cuts and don't see his Scotland where everything is free and everything is fantastic," she said.
Budget 'under attack'
The SNP leader agreed with Ms Lamont that the Scottish budget is "under severe attack", but said Ms Lamont was "deeply wrong to talk about a something for nothing society" and accused her of using "exactly the language of the Tory party of 20 years ago".
"The solution to that fact cannot be abandoning concessionary fares or free prescriptions or free personal care, or reintroducing tuition fees or abandoning the council tax freeze," he said.
"How are the working families of Scotland going to benefit from adopting the policies the Tory party have adopted south of the border?"
As the exchanges became more heated the Labour leader's attack turned personal as she attempting to paint the First Minister as free-spending and out of touch.
"I understand why the First Minister thinks everything is free. He's on £130,000 a year, spends over £2,000 a week on hospitality and then gets the taxpayer to spend £1,300 a year for a TV package to watch the films and sports events that he then gets them to pay for him to attend," she said.
Referring to the Scottish Government's renting out a property in London during the Olympics, she said: "The First Minister does not live in the real world. He lives in a world where it is fine to spend £400,000 to rent out a gentleman's club in Pall Mall but doesn't worry about the care worker that has had their wages cut by £4,000 a year.
"He's not an economist: he's a fantasist. No wonder from Hampden Park to the Ryder Cup, from George Square to the Edinburgh Tattoo, he gets roundly booed wherever he goes."
Mr Salmond hit back by saying Labour had moved away from the "fundamental principle" of universal benefits and its support would "vanish like snow off a dyke".
He insisted that ending universal benefits would be inefficient as well as unpopular and erode the fabric of society.
"There is ample evidence that systems where benefits are paid to the majority are considerably more popular, as well as more efficient, than those which reserve benefits solely for the poor," he said.
"I don't understand why Labour have moved away from that fundamental principle.
"The reintroduction of means testing would not be popular. I agree with that. But it also would not be efficient. I agree with that.
"To hold society together we have to make sure that certain things are so important, like free education in Scotland, that the people who are lucky enough to be in a position to make the contribution through their taxation can see the benefit socially as well. That's how you hold society together.
"The introduction of sweeping means testing across the valuable areas of society will introduce both inefficiency and social division, a point the Labour party recognised and, by and large, stayed faithful to for many years and now is deserting."