Malta could end up paying more than it receives for EU coronavirus recovery, expert warns

Funds from the EU meant to help member states recover from COVID-19 effects could end up being more detrimental that beneficial to Malta, EU expert Peter Agius has warned.

European Commission Ursula von der Leyen on Wednesday unveiled proposals for a €750 EU recovery package meant to revive the European economy from the negative impact of the coronavirus.

While the individual allocations for each member states under the package, dubbed Next Generation EU, have not been finalised, EU sources told this newspaper that Malta could receive €992 million.

Agius, however, said that due to the nature of the recovery packages, which would sit on top of the EU's budgetary framework for the 2021-2027 period, Malta might pay more into the coronavirus pot than it actually receives.

Next Generation EU's funds would be different from those normally granted through the Union's Multiannual Financial Framework (MFF), the former PN MEP candidate said. 

While the MFF budget is financed through payments from VAT collections and Gross National Income (GNI) contributions in member states, the COVID-19 package's funds would come from Europe's "own resources", essentially meaning the money would have to be raised through direct taxation.

"The European Commission is proposing that this money should be paid not from Gross National Income contributions but from European direct taxes. This may seem like a small technicality but according to Agius it may make all the difference for Malta," Agius said.

Agius told MaltaToday that Next Generation EU's grants and loans would be financed using three taxes, two of which - financial transaction taxes and digital taxes - could be increased to the detriment of Malta. "This can be very dangerous for Malta," he said.

"So, while it's true that Malta could get up to a €1 billion, we need to discuss where this will come from."

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He went on to refer to comments by Finance Minister Edward Scicluna, who warned of the potential pitfalls of the proposed EU rescue package, which he said would turn out to be a "prickly pear."

Agius said the package was actually a "'prickly pear' that needs to be peeled strategically to get the best out of it for the benefit of businesses, SMEs and workers who are in difficulty because of COVID-19".

"If we do not succeed in negotiating different sources for fresh EU funding, we will end up paying them ourselves from the taxes that are imposed on Malta-based companies," he said.

He said that Scicluna's reaction was worrying because the minister seemed to be already admitting a walkover, when the negotiating match in Europe had started its second half - in which the proposal has to be negotiated in the Council of Ministers and then by Prime Minister Robert Abela in the European Council. 

"The government should not come up with excuses from now on, but should present the needs of Malta and Gozo, which, especially due to tourism, should be considered as a 'net beneficiary' and not a contributor, as might happen according to the European Commission proposal," Agius saiud.

"My appeal to Minister Scicluna is that he has to make sure to convince the other member states on the ways how the package's money is generated. Scicluna should push for these funds to come for taxes such as those on plastic, carbon, cement, diesel and so on, which can help EU countries reach their environmental objectives," he said. 

"Scicluna has to work so that the EU moves away from using digital taxes to generate the funds. A digital tax would end up taking a third of Maltese gaming companies' profits away."

This, Agius said, was the "monumental challenge" which Malta would face in the coming months.