PARIS — Britain’s impending exit from the European Union is a unique opportunity to shake up, simplify and detoxify the way the EU funds itself.
That is the message of a blue-ribbon panel, chaired by former Italian Prime Minister Mario Monti, which will recommend new options to the European Commission and Parliament this week for raising revenue directly for Europe and diminishing the amount handed over to Brussels by national treasuries. The U.K’s departure, the Monti report says, “provides a unique window of opportunity to review how we measure the real costs and benefits of the EU.”
The idea sounds attractive, but it is bound to trigger a fight over whose money it is in the first place, with accusations that European grandees are quietly dreaming up a dreaded “EU tax,” or trying to siphon off revenue sources that should flow to member governments.
In the final report, seen by POLITICO, Monti’s 10-member group denounces a “long neglect of how the EU is financed” and calls for a “simpler, more transparent, equitable and democratically accountable” way of levying so-called Own Resources for the EU without increasing the overall budget. Monti will present the study to EU finance ministers on January 27.
The panel consists of members drawn from all three major EU institutions — Council, Commission and Parliament. The potential new sources of income they identified include a share of taxes on corporate income and financial transactions; an electricity tax; a carbon levy or proceeds from the EU’s Emissions Trading System; a motor fuel levy or fossil fuel excise duty; and other revenue from EU policies such as border control, the digital single market, environmental protection and energy efficiency.
Brexit, as the saying goes, changes everything. Britain long led the resistance to any attempt to let the Union raise income independently of national governments, fearing a power grab by Brussels that would lead to uncontrolled spending.
Ever since the U.K. Prime Minister Margaret Thatcher swung her handbag at European summits, declaring “I want my money back,” the question of who pays how much toward the EU budget has been the most poisonous issue in Brussels, sparking vicious battles every seven years on a multiannual financial framework (MFF).
It took two ugly summits to agree on the 2014-2020 budget. Britain and Germany managed to secure the first ever reduction in overall EU payments, arguing that Brussels should apply the same austerity to itself as it prescribed for indebted member countries.
Brexit will put an end to the British rebate negotiated by Thatcher in 1984, under which London got back roughly two-thirds of its net contribution to EU coffers. The refund was financed by other EU members paying in more. That led in turn to a “rebate on the rebate,” capping the contributions of Germany, the Netherlands, Sweden and Austria.
All that will go with the Brits, along with the U.K.’s annual net contribution of roughly €6 billion. Barring whatever exit bill Britain is assessed to owe to the Union, the EU will have less cash to fund economic development in poorer member states and regions, agricultural subsidies, scientific research, economic competitiveness and assistance to third countries.
It is not yet clear whether the result will be a smaller EU budget, higher contributions by the remaining members or some widening of the EU’s traditional Own Resources — money received from customs duties on goods imported into Europe and a share of Value Added Tax revenue.
Over the decades, the share of customs revenue in EU funding has dwindled to about 14 percent as tariffs have fallen. The VAT Own Resource also makes up about 14 percent of funding. That means more than two-thirds of the EU’s income now comes from a levy on member countries’ Gross National Income (GNI).
While levying taxation remains strictly a national prerogative, the EU treaty says “Without prejudice to other revenue, the budget shall be financed from own resources.” It does not specify how.
Germany and the Netherlands, both large net contributors, have also opposed any earmarking of additional revenues beyond customs and the VAT slice to fund the EU, arguing that such a move would breach their constitutions.
The Monti group, which included Commission Vice President Frans Timmermans, a Dutchman, and German economist Clemens Fuest, head of the conservative Ifo economic research institute, argues that things are not so clear-cut. They recall, for example, that German Finance Minister Wolfgang Schäuble has proposed a Europe-wide levy on gasoline to fund additional spending on the refugee crisis.
The report also notes that there are multiple padlocks to prevent runaway EU expenditure, with annual budgets requiring European Parliament and Council approval by a qualified majority, all within the iron corset of the MFF. What is at stake is not more or less spending, but raising the money in a way that eliminates or greatly reduces the zero-sum battles among member countries.
Monti, a former European commissioner for taxation, the internal market and competition, is too wily to recommend a single preferred option for new Own Resources, knowing it would come under immediate attack.
The EU limits its total Own Resources to 1.2 percent of gross national income. In practice, expenditure is lower at just 1.05 percent of the Union’s economic output in 2016, or €155 billion — barely 1/40th of national budgets. Since the Union is not allowed to run a deficit or borrow money, each year’s budget must be balanced, which becomes increasingly tricky since spending on long-programmed infrastructure projects is higher toward the end of each seven-year period.
Britain’s departure should be used to change the tone of the budgetary debate. Rather than simply looking through the distorting lens of “how much do I pay in and how much do I get back,” countries should examine how much the EU as a whole and its member countries in particular benefit from cross-border spending.
Everyone would gain if the relatively modest EU budget was no longer seen only as a zero-sum game, but as an opportunity, as the Monti panel puts it, to maximize “European added value,” be it through coordinated border control or via expenditures that complement national expenditures.
Letting the EU gather more of its Own Resources, as the founding fathers intended from the outset, would be a good start.
Paul Taylor writes POLITICO‘s Europe At Large column
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