When Malta joined the European Union in 2004, one of the primary objectives was to see the country upgrade its economic performance to hit, as a minimum, the 75 per cent of the average GDP within the EU. Thanks partly to a generous allocation of cohesion funds to catch up with other member states, Malta has now passed the crucial GDP benchmark and, technically, no longer automatically qualifies for more cohesion funds.
In the coming months, the EU will be discussing the budget for 2020 to 2027. One of the main issues relating to this planning period is how to fill a funding gap of €13 billion when Britain leaves and will no longer contribute to the EU’s budget. For Malta, the challenge will be to convince the other member states that, despite its economic growth in the last decade, it still needs to be a net recipient of cohesion funds.
The benefits of such financial input are clear for everyone to see. Major infrastructural and social projects have materialised thanks to the disciplined way in which the EU distributes common funds aimed at promoting social and economic equality among its members.
It is essential that the country’s political leaders make known their economic strategies post-2020 when such financial support from the EU may no longer be available because, for the first time, Malta becomes a net contributor to EU funds.
EU observers and diplomats informally comment that it is unlikely that Malta will continue to benefit from cohesion and other EU funds in the present worsening funding scenario. The island’s economy is one of the best performing in the EU and poorer member states will understandably consider our need for more cohesion funds as a low priority. The Prime Minister argues that, rather than being vociferous and making noises in Brussels on this issue, what matters is “strategy and results”.
Though everyone expects the country’s political leaders to make the best case for more financial support from Brussels for economic and social development, the rules of the game are likely to have an adverse impact on Malta’s ability to use cohesion funds for further economic expansion. Now is the time for robust contingency planning to reduce Malta’s dependence on EU funds to underpin economic and social progress.
While at present the economy is performing well, few think that Malta’s economic model is flawless and that it will see the country sail smoothly in the troubled waters that surround us. Our attractive tax incentives have lured substantial direct foreign investment that created thousands of jobs, which are mostly being taken by expatriate staff. On the other hand, there are thousands of underqualified people seeking employment in the public sector in a patronage culture that both major political parties show no signs of wanting to change.
Economic planning must be based more on the advanced skills of our people, thanks to a more effective educational system, than on fiscal policies that promise tax benefits to those who set up shop here.
The EU’s determination to promote tax harmonisation is unlikely to be deflected by the objection of Malta, Ireland and Luxembourg.
People’s skills rather than fiscal strategies are more likely to fill the gap left by the withdrawal of cohesion funds.
This is a Times of Malta print editorial