Commission proposes new tax to fund EU budget

Change to system of financing would reduce member states’ direct contributions.

The European Commission has suggested a new form of tax to finance the EU’s budget and reduce member states’ direct contributions.

The Commission today (19 October) said that the current system of financing the EU’s budget of around €132 billion a year is too reliant on member states contributing directly. Direct contributions account for around 70% of the budget with the rest coming from ‘own resources’. The Commission argues that this system has led to “bitter debates about net contribution” and a “complex system of rebates”.

It suggests that member states’ contributions could be reduced by abolishing the own resource funding based on a share of value-added tax and introducing a new system. It suggests a share of a tax on financial transactions or activities, a share of the proceeds of auctioning greenhouse-gas emissions allowances, a tax on air travel, a separate VAT rate, an energy tax or an EU corporation tax.

The suggestion on improving the own resources system is part of the Commission’s plan to move away from the debate on net contributions and towards a stronger focus on European ‘added-value’. “Negotiations on the budget are too often guided by the need to give everyone the feeling they got their fair share rather than on giving European priorities the right funding”, its paper on the subject said.

The Commission is also calling for more flexibility in the budget so that the EU can respond more easily to unforeseen events. “When sudden new circumstances arise [the EU’s budget] is too slow to react. Current rules make shifting funds, even in a very limited way, a long and cumbersome process,” according to the paper.  

The paper shies away from suggesting an overall amount for the budget or how to divide the budget among different policy areas, saying that there should be a debate on the principles of the EU budget before discussing figures. However, it does say that there should be further reform of the Common Agricultural Policy, which accounts for around 40% of the total budget. Possible reforms include reducing discrepancies in the level of direct payments, and shifting funds away from income support to environmental and climate-change objectives.

The Commission says it will present formal proposals for changes to the EU’s budget after 2014 before the middle of next year.

MEPs and national governments are in negotiations on the 2011 budget, with a large number of member states trying to limit the increase for next year to 2.9%. But MEPs want a 5.9% increase to ensure funding for projects linked to tackling employment and boosting growth.