The European Commission listed yesterday (19 October) a number of options to fuel the EU's future budget, which is currently funded overwhelmingly by member states. An EU VAT, a tax on air transport or a share of new financial, corporate or energy taxes are among the possible options.
The options listed are not definitive and are intended to serve as a basis for discussion when the EU launches negotiations next year over its next long-term budget for 2014-2020.
"The Commission does not believe that the current mix [of resources] is appropriate," reads a note issued by the EU executive which underlines that almost 90% of the budget is directly funded by member states.
"Not only does this go against the spirit of the Treaties but this gave birth to the bitter debates about 'net contributors' and the complex concepts of rebates" which have been awarded to the UK, but also to Sweden, the Netherlands, Austria and Germany, argues the Commission.
This situation tends to favour "instruments with geographically pre-allocated financial envelopes rather than those with the greatest EU added value," the Commission concludes.
In view of this, Brussels is proposing to increase its own resources for the next long-term budgetary period in 2014-2020. In other words, the Commission wants funds which it can obtain directly instead of depending on member states for financial support.
Indeed, the global economic downturn has put member states' budgets under pressure, leading to austerity measures in almost every EU country, and Brussels is likewise urged to reduce its expenses.
UK Business Secretary Vince Cable recently warned of a "backlash" across Europe if citizens are hit with cutbacks while Brussels' budget is untouched. "At a time when national governments have to make very deep cuts, people can't understand why the Commission and Parliament would want to protect the EU budget," he said.
Moreover, the European Union's only 'own resource', which comes from import duties, is gradually decreasing as a consequence of the lower tariffs applied by the EU on imported products.
As a follow-up to a number of ideas circulated in recent months, Brussels launched a budgetary review that proposes new own resources while at the same time eliminates one of the current levies imposed on member states' incomes.
Towards an EU VAT?
One of the Commission's most surprising proposals concerns the introduction of an EU Value Added Tax (VAT). Currently Brussels applies a levy on national VATs, which brings in something like €14 billion per year, but it reduces member states' incomes.
The proposal foresees replacing the current levy with a direct EU VAT. This would lower the burden on member states, although it is likely to increase the burden on citizens.
In an annex to the proposal, the Commission says that if the VAT were applied at a 1% rate across the EU, "combined with elimination of the existing VAT-based resource," it would bring to the EU coffers something like €41 billion a year. These figures result from a study carried out in 2004.
"The Commission puts forward the option of reducing member states' contributions by abolishing the VAT-based own resource and progressively introducing one or several new own resources as a replacement," reads a note from the EU executive.
The list of alternative 'own resources' suggested by the Commission is long, but "non-exhaustive," says the Commission.
A possible candidate for new own resources could be a share of a financial transaction or financial activities tax. Of the two, the first appears unlikely to be applied, as the Commission itself made clear at the beginning of October, while the second option also seems controversial.
Another option involves collecting the financial benefits of "auctioning greenhouse gas emission allowances". "An EU charge related to air transport" is also under consideration, following similar moves adopted in some member states.
"A share of an EU energy tax or of an EU corporate income tax" was proposed as well but opposition will likely be strong.
UK rebate back on the table
The Commission proposal also puts the UK's controversial EU rebate back on the table, saying it needs to be scrapped.
An annex to the Commission proposal reveals that respondents to a public consultation indicated "very heavy opposition" to "correction mechanisms" such as the UK's current rebate, which is worth €3.5 billion each year.
The issue risks splitting the UK government coalition between Prime Minister David Cameron's Conservative party and the normally pro-European Liberal Democrats.
Bill Cash, the Conservative party chairman of the House of Commons' European scrutiny committee, signalled on his website that MPs would pressure Cameron to draw a red line on the rebate ahead of an EU summit next week.
"This must not only be refused on the basis of not giving new powers to the EU but we have to have a referendum," Cash said. "With the rebate and tax proposals, the EU is making demands that are completely unacceptable to the British people."