Monti group challenges the ‘juste retour’ principle in EU budgeting

Mario Monti [European Council]

The ‘Monti group’ will propose new ways of budgeting for the post-2020 period on Thursday (12 January), challenging the principle of ‘juste retour’, and looking at the opportunities of abandoning the UK rebate, according to a draft report seen by

The high level-group on own resources, better known as the “Monti group”, named after its chair Mario Monti, a former Italian prime minister and EU Commissioner, is holding its last meeting today.

The group, which includes high-level lawmakers from the Parliament’s main political groups, was established in February 2014, and tasked with producing a report by the end of 2016, with proposals for reforming the EU’s income arrangements, known as “own resources”.

European Parliament kicks off ‘own resources’ group

The current leaders of the three main EU institutions launched yesterday (25 February) a high-level group on EU "own resources" to be chaired by the former prime minister of Italy, Mario Monti.

The Monti report will serve as the basis for the Commission’s legislative proposals for the EU’s long-term budget for 2021-2027, due by the end of next year.

The 100-page report, which will be presented by Monti and his team to the European Parliament Budgets Committee, criticises the current budgeting system, with all its exceptions, rebates, different sources of funding and dependence on national budgets.

The Monti group believes that the objective of a future reform should be to finance the majority of EU expenditures via genuine own resources.

The group has found that EU own resources are interpreted in national budgets in a great variety of ways, which makes comparisons between member states almost impossible and results in a conceptual bias where some own resources are in fact considered a national transfer or ‘cost’ item, and not a resource ‘owned’ by the EU.

European added value is completely ignored, the report states. At present, budgetary balances are calculated by simply offsetting what a member state is allocated on the expenditure side with its national contributions. The report argues that a broader measurement should  be  sought  for  the  collective  benefit  of  EU policies,  economic  synergies,  cross-border effects and positive external outcomes.

Monti group to focus on added-value for future EU budget

The so-called Monti group, named after its chairman, the former Italian Prime Minister Mario Monti, is trying to identify what exactly creates European added value, so that more resources for the EU budget would come from there in the future, to the relief of taxpayers, member Ivailo Kalfin told EURACTIV.

End of UK rebate seen as an opportunity for reform

The ‘juste retour’ dilemma has transformed the EU budget, and by extension the EU, into a zero-sum game instead of the win-win arrangement it is expected to be, the report argues.

Because this method was introduced to calculate the UK rebate, the withdrawal of the UK from the EU and the discontinuation of the ‘British rebate’ provide a unique window of opportunity to review how the real costs and benefits of the EU are measured, the Monti group states.

The withdrawal of the UK from the EU entails the discontinuation of the UK correction mechanism and the related ‘rebates on rebate’ – the reductions which Germany, Austria, the Netherlands and Sweden benefit from the financing of the UK correction. More generally, any correction mechanism on the revenue side should be abolished, the report says.

Alternative revenue sources

The group recommends introducing alternative revenue sources, which are not perceived as national contributions but rather as resources directly linked to EU policies.

The report strongly argues in favour of new own resources which would help enforce some EU policies and support EU policy objectives, in particular economic, social and environmental sustainability.

However, the report confirms previous findings that there is no single ideal ‘own resources’ option, only several suitable ones, as follows:

  • A reformed VAT-own resource (replacing the existing one), corporate income tax-based own resource, financial transaction tax or other financial activities’ tax, which would have the advantage of improving the functioning of the Single Market. Moreover, particularly in the case of reformed VAT and EU corporate income tax, they would promote fairer taxation and contribute to the fight against tax fraud or tax avoidance — VAT being the only tax already covered by EU law.
  • Energy Union/environment/climate/transport policies: the CO2 levy, the inclusion of the European emission trade system proceeds, an electricity tax, a motor fuel levy (taxes on fossil fuels/excise duties), or indirect taxation of imported goods produced in third countries with high emissions.
  • Revenue other than own resources can also finance the budget and should be explored. For example, auctioning proceeds or other revenue stemming from EU policies such as border control, the digital single market, the protection of the environment or energy efficiency (excess emission premiums for cars), or resulting from EU competences, should in principle accrue to the EU budget.

Greens pre-empt Monti group report with alternative paper

The Green/EFA group stole the show ahead of the announcement of the results of the work of the “Monti group” on own resources for the future EU budget, by tabling an alternative report focusing on “green own resources”.

The Monti group stresses that fundamental budgetary principles of unity and universality of revenue should remain the ‘point of departure’ of any reform effort and not be jeopardised. Only when some member states wish to go further in some areas of EU integration, differentiation on the revenue side could be a workable solution, notably for the further development of the eurozone, and new policies such as defence.

“European policies should be financed by European revenues. The EU needs a fairer and more reliable system of financing. Instead of national contributions, the EU-budget should be financed by own-resources, as it is originally foreseen in the Treaties. This would end the harmful net-payer debate between the Member States, which undermines the trust in the European Union. Financing the EU partly by a financial transaction tax, for example, would ensure that not only the tax-payer, but also the financial industry, largely responsible for the crises, bears its share of the costs.” Jo Leinen MEP, President, European Movement International

The EU budget is primarily an investment budget, with some redistributive functions between the member states. It serves mainly to support common EU policies and objectives, underpinning the advancement of the acquis communautaire on a multiannual basis, and provides seed money for medium- to long-term investments. The flexibility and influence for short-term crisis intervention remains a weakness that must clearly be addressed. The budget is too small for real anti-cyclical economic stabilisation and substantive redistribution, which are a mainstay of national budgets, or for what orthodox wisdom would require of a ‘federal-level’ budget.

The EU budget does not run an annual deficit, is not financed by borrowing money on the financial markets and thus does not build up public debt.

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