A budget that connects citizens with the EU

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Frankfurt, where the European Central Bank HQ is located, will receive up to 1.000 employees from Goldman Sachs London offices. [European Central Bank / Flickr]

Increasing the bloc’s revenue with own resources and strengthening the link between policy goals and spending would make the EU more dynamic and more relevant to its citizens, writes Petros Fassoulas.

Petros Fassoulas is secretary-general of the European Movement International.

The EU budget, which is supposed to unite our Union, has become a divisive battlefield. The current system of financing the EU, based predominantly on raising funds from member state contributions, leads to horse-trading and public disagreement. This undermines the EU’s ability to function effectively, negatively impacts public perception, and runs contrary to the founding narrative that foresaw such contributions to be a minor part of the EU budget.

A bigger share of own resources in the EU budget would allow the bloc to be more flexible in shaping and implementing its policies, while creating a clear connection between the EU’s goals and its budget. It would also allow for the gradual replacement of national contributions, eventually making the EU budget more independent from member state contributions.

An area where own resources would be particularly helpful would be a fiscal capacity for the Eurozone. Developed within the EU’s Multiannual Financial Framework and coupled with strengthened, more legitimate and democratically accountable European economic governance, a fiscal capacity could function as a Eurozone budget and be used to promote structural reforms, increase economic convergence and mitigate asymmetric macro-economic shocks. Furthermore, own resources would provide the necessary tools to invest in sustainable growth and recovery measures.

The creation of such an own resources budget should be developed as part of a wider effort to make the current system more efficient, stable and fair. This includes taking a more comprehensive approach and considering the current efficiency of EU spending, rather than just isolating the income side. In this vein, any taxes levied at the European level should not constitute an additional tax burden, and should thus be coupled with a reform of taxes at other levels.

A clearer link between the EU’s policy objectives and its sources of finance should be an important criteria in the selection of forms of own resources. The Financial Transaction Tax and carbon tax are very promising in this respect. Moreover, in the interests of stability, it would make sense to envisage several different income streams for own resources.

These steps would serve to gradually phase out direct member state contributions, while connecting the manifestos of European political parties to different positions on the form and level of income-raising tools – as happens in other legislatures. That would give citizens a greater voice in the debate around what the EU should be doing.

In addition to the above-mentioned levies, several other ideas spring to mind. A Europe-wide VAT would present a direct contribution to the EU budget, visible on every receipt and invoice. In addition, a European corporate income tax would create a direct link between those operating in and benefiting from the single market and the EU, especially if the EU were the sole body responsible for setting the tax rate, helping to increase efficiency in the single market. Similarly, a tax on aviation emissions could be used to fight climate change and achieve EU environmental policy objectives and would be visible for all EU citizens on their plane tickets, enabling them to link their contributions to the EU’s policies to protect the environment.

In a larger sense, the yearly profit of the European Central Bank could be transferred to the EU, making use of funds already available at EU level. Moreover, the common issuance of debt, through Eurobonds, could also allow the EU to tap the markets for financing, just like member states do, while contributing to increased financial and monetary stability.

At a recent European Movement International event with Kristalina Georgieva, Vice-President of the European Commission, and Mario Monti, Chairman of the High Level Group on Own Resources, precisely these questions were discussed. Both speakers openly questioned how other developments – notably the impact of the British secession from the EU and a current lack of cohesion in other policy areas – might affect the process of establishing EU resources, which both Georgieva and Monti are working towards.

While the wider context certainly demands our attention, success in the area of own resources would create space for a more dynamic, flexible and goal-oriented EU. At its core, the debate on EU financing centres is about how the EU defines itself and, importantly, on how citizens perceive the EU. By taking a more confident route, linking spending more succinctly with policy goals, and growing revenue sources in order to reinforce that link and ensure stability, the EU can refocus and redefine how it works for citizens.