Will Brussels introduce an EU VAT to finance its budget? European Health and Consumer Policy Commissioner John Dalli tells Kurt Sansone this is not the case as he outlines the Commission’s budget proposals for the period 2014-2020.

The EU Commission’s proposal for the forthcoming budgetary period includes a controversial suggestion to introduce a specific EU VAT. How will this work?

The suggestion is to have a different calculation on how VAT contributions to the EU’s budget by member states are worked out. It is a different method. The previous system was complicated because the basis on which the VAT transactions were calculated included products or services that might have been zero-rated in some countries, such as food and medicines in Malta. So Malta was obliged to factor in the amount of sales in these sectors when it worked out its VAT contribution to the EU.

The Commission is suggesting that a list of products and services is drawn up on which VAT is levied in all member states and a percentage of income derived from these is transferred to the EU.

Will this mean an additional EU tax?

The VAT rate does not have to increase to make this proposal work because Malta is already passing on some of the income from VAT to the EU. It is the formula that determines the amount of VAT and from which products it is collected that will change.

You are simply reducing this proposal to a change in calculation. Does this mean there will be no EU tax?

The EU will not introduce taxes. It has never done so and there is no intention to do so. Taxes will continue being collected by member states.

But the Commission has also suggested the introduction of an EU-wide tax on financial transactions.

This tax has already been introduced in some member states. There are currently no EU provisions for such a tax and the idea is to have a consistent way of collecting money for the EU budget. The bottom line is that the EU has no intention of collecting additional funds, and any income generated will be deducted from the money member states already fork out using the mechanisms in place. The question we are asking is whether the financial sector should also contribute to finance the European budget, but the impact will have to be studied before decisions are taken.

The Commission is seeking a shift in expenditure from agriculture to research and development. Touching agriculture has always been a thorny subject especially for the French. Will this be possible?

The cuts in agriculture are a result of a reorganisation of the common agricultural policy to implement it in an efficient way rather than because of less activity in the sector. But agriculture still has an allocated budget of €327 billion and the sector is 70 per cent financed by the EU. Research and development has an allocated budget of €80 billion.

Is research and development simply a buzzword across the EU?

Europe is giving this sector a lot of importance. My colleague, (Commissioner) Michel Barnier, who is responsible for the Single Market, recently launched a directive to make it faster and less costly for people to register patents. We are trying to find ways to simplify the process by which small companies apply for research funds. In health I will be proposing a new directive to replace the one on clinical testing, which is hampering growth in the pharmaceutical sector.

Malta remains on the lower rungs in funds allocated for research and development.

I always believed Malta’s success in this sector depended on partnerships with other European institutions, and the government’s contribution will have to be in the form of seed capital. Malta has the knowhow but not the capacity to make substantial developments.

What are the aims of this budget?

We want to achieve the aims outlined in the EU 2020 strategy. We want to achieve real economic growth in value-added activities and increase the number of jobs. One of Europe’s biggest problems at the moment is high unemployment among young people, and this creates apathy and unrest.

With unemployment being so high how can the bailout conditions imposed on Greece and Ireland, which are weighing down on people, lead to economic growth?

The conditions imposed on Greece are the same ones Malta had to adhere to before joining the EU. Before 2004, Malta had to reach certain standards. The country went through 10 years of sacrifices. We removed subsidies, introduced VAT, tightened the systems to collect revenue due to the government, diversified the economy and privatised public entities. This led to a resilient economy. The problem with Greece is that they have to make the changes over a much shorter timeframe after postponing them for 30 years.

Malta has been a net beneficiary from the EU. This is expected to change because the introduction of Romania and Bulgaria into the equation lowered the average EU GDP. Do you see the prospect of Malta becoming a net contributor in the next budget?

Some would argue it is positive for Malta to be a net contributor because it means the country has progressed well. It is true that the EU average GDP has been dragged down and it is for this reason the Commission is proposing the introduction of a new category of member states called transition countries. These would be countries like Malta that statistically would not qualify for the highest form of funding but have not yet reached the highest level of progress. But it all depends on whether the proposal is accepted by the Council of Ministers.