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José Manuel Barroso, president of the European Commission, proposed to increase the EU budget from the current €976 billion to €1.025 billion for the next seven-year period, which starts in 2014.
This represents a 4.8% increase, which is beyond the average 2% inflation recorded in the last decade.
In a bid to woo member states that are opposed to further rises in the EU budget, the Commission proposed to reduce national contributions, in line with austerity measures adopted across Europe.
In the previous period (2007-2013), each country committed 1.12% of their Gross National Income (GNI) to the EU budget, a contribution that the Commission is proposing to bring down to 1.05%.
"We are proposing an ambitious and at the same time responsible budget," Barroso underlined.
The Commission's proposals are conservative in that the share of funding allocated to the EU's two main areas of expenditure – agriculture and regional policy – remain largely unchanged.
Two new areas will benefit from significant new sources of funding – the EU's External Action Service (EEAS), which was introduced after the Lisbon Treaty, and home affairs, which includes border control, security and immigration.
These are partly offset by a planned reduction in administrative spending, a move that is expected to trigger protests from EU civil servants in the coming days.
Separately, an extra €58 billion is earmarked for programmes that are currently covered by the EU budget, such as the European Globalisation Fund or the international nuclear fusion reactor ITER.
If added to the budget, the overall amount of national contributions would increase to €1.083 billion per year on average.
EU VAT and financial transactions tax
But probably the most controversial move is a proposal to raise taxes at EU level, something presented as a way to reduce contributions from national coffers.
Currently, the EU budget is mostly funded through financial transfers from member states.
The first option would be to tap into a European Financial Transactions Tax (FTT), a suggestion Barroso made ahead of a June summit of European leaders. "Ten member states already have mechanisms to tax financial transactions," Barroso argued, adding that without a common EU framework on financial taxation, "we risk breaking the internal market for financial services".
Barroso dismissed criticism that an FTT applied only to the European financial sector would favour the EU's international competitors. "Instead of waiting for everybody to have a financial transactions tax, we thought that is better to have our own and then see if we can create the conditions for a global financial tax," he said.
Moreover, the EU executive suggested introducing a direct Value Added Tax (VAT) at EU level. Currently the Commission receives a levy on national VATs, a system which brings in around €14 billion per year to the EU budget, but reduces member states' incomes. The proposal foresees replacing the current levy with a direct EU VAT, shifting the burden from member states to taxpayers.
In a working document published in October, the Commission said that if the EU VAT was applied at a 1% rate across the EU, "combined with elimination of the existing VAT-based resource," it would bring around €41 billion a year to the EU's coffers.