Updated 5.30pm - Added government reaction

Malta’s economic boom is set to make the country one of the European Union’s biggest cohesion fund losers, under budget plans unveiled by the European Commission on Tuesday.

According to the plans, Malta would receive roughly €673 million in cohesion funds between 2021 to 2027 – though that proposed figure is in reality closer to €597 million when funding is locked in at 2018 prices, without inflation factored in.

That €179 million cut would mean a roughly 24% reduction in funding for Malta. Hungary, the Czech Republic, Lithuania, Estonia and Poland are set to experience similar cuts in relative terms, according to an analysis conducted by the Financial Times.

In the last round of EU budget negotiations for the period stretching between 2013 and 2020, Malta had secured almost €800 million in cohesion funds, which are targeted at helping the EU’s poorer regions pick up the pace and catch up with the rest of the continent.

But since then, the country’s economy has roared forward to become the fastest-growing across all 28 member states, and GDP per capita has risen from roughly 85% of the EU average to closer to 95%.

And with the European Commission saying on Tuesday that it used GDP per capita as the key factor in determining cohesion policy funding allocation, that economic growth spurt has hurt Malta's chances of locking in funds. 

With Brexit on the horizon, EU policymakers have struggled to balance the books going forward, and the European Commission has made no bones about the need to tighten belts and reduce cohesion funding.

Malta to retain transitional status

Malta's European Affairs Ministry alluded to Brexit and pre-announced cohesion policy budget cuts in its initial reaction to Commission's proposals, while noting that proposals for various other EU policy sectors - from agriculture to migration and security - had yet to be issued. 

It welcomed the Commission's proposal to broaden its definition of transitional regions to those which had a GDP per capita of up to 100 per cent the EU average, rather than the existing 90 per cent. 

This, the government noted, would ensure Malta remained classified as a transitional region for funding purposes. 

Cuts all round 

In effect, the Commission proposals would grant eight member states a combined total of €8.2 billion more in more cohesion funds between 2020 and 2027 than they received during the previous seven years, with Italy ending up being the winner in absolute terms (a €2.3 billion increase) and Greece, Romania and Bulgaria the biggest winners in relative terms (with each getting an 8 per cent increase).

But those grants would be more than offset by the €45.2 billion cut from the cohesion fund budgets of 14 states, including Malta. Poland, which is locked in a series of rule of law disputes with Brussels, stands to lose the most in absolute terms, with a massive €19.5 billion cut in cohesion funding proposed.

Following pressure from various MEPs, the European Commission listed its budget proposals using both inflation-adjusted current prices, as well as baseline constant prices.

Long road ahead

The figures proposed by the EU Commission on Tuesday are by no means a done deal, and form just one part of the broader EU budget.

Member state governments must assess the Commission’s budget proposals within the EU Council of Ministers and adopt a position, which is then sent to MEPs. If MEPs and the Council agree, the deal must then be formally approved within 14 days. If they do not, then the budget is sent back to the Commission drawing board.

European Commission policymakers are keen to focus cohesion policy funding on helping poorer regions transition to low-carbon technologies while helping spur job creation and innovation.

Read: Metsola makes case for increased EU funding for Gozo

In a statement announcing the plans, the Commission said that GDP per capita remained the predominant criteria for allocating funds, and that the three-tiered classification system in place – less-developed, transition and more developed – would remain.

Its proposed funding plans cut red tape, with a single rule book for seven EU funds implemented in partnership with member states and policymakers making it easier to develop funding synergies between cohesion and other EU funding pots.

It provides for a mid-term review halfway through the EU budget period which would allow for checks to see if changes are needed for the final two years of the funding period. If they are, a limited transfer of resources within EU funds programmes would be allowed.