State aid halved since 2004

Malta has managed to more than halve its level of state aid since joining the EU, although it is still considered to be above average.

Malta's level of state aid in the various sectors last year fell to just 0.6 per cent of GDP, less than half the 2004 levels of 1.4 per cent, according to the 2007 State Aid Scoreboard just published in Brussels.

The scoreboard shows that while in 2004 the state pumped €144 million into various sectors, the subsidies were cut down to €99 million last year.

The situation is expected to improve in the coming years as the millions of euros in state aid granted annually to Malta Shipyards will cease at the end of this year, when a seven-year transition period negotiated between Malta and the EU ends.

"Malta has made substantial progress in the field of state aid, although there are still areas where state intervention in the economy can be reduced further," a senior EU official said when contacted.

"For example, we still consider aid given to the transport sector as being on the high side when considering Malta's small economy," he said.

Transport got the smallest proportion of Malta's subsidies of €99 million last year, receiving €7 million.

The biggest chunk, €72 million, went to the manufacturing sector, which includes the shipyards and aid given to industry under the Business Promotion Act.

Though its contribution to the economy is considered minimal, agriculture was also the recipient of many subsidies amounting to €18 million last year.

This will come down in the coming years as transitional periods and pre-accession arrangements with the EU to help the sector will be phased out.

According to EU rules, state aid should be limited as much as possible because it stifles competition. However, the EU encourages aid in areas such as research, development and the environment.

According to the 2007 state aid scoreboard, the highest levels of state aid last year were granted in Hungary (1.42 per cent of GDP), Bulgaria (1.35 per cent) and Portugal (1.31 per cent).

The average state aid for the EU 27 stood at 0.4 per cent of GDP, the same as in the euro area.