Pan-European tax on the table after Brexit

Marine Le Pen has not mentioned the budget deficit in her election campaign. [Camilo Rueda López/Flickr]

Delegates from around the EU last week met in Brussels to discuss the possibilities for budget reform, an issue previously blocked by the United Kingdom. EURACTIV France reports.

Historically opposed to the creation of a European tax system, the Brits were noticeably absent from the interinstitutional conference on the future financing of the EU.

This conference, held in Brussels on 7 and 8 September, brought together members of the EU’s national parliaments, MEPs and representatives of the EU institutions to discuss the delicate question of the European budget.

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The EU’s budget represents less than 1% of its member states’ wealth, and is fed by direct contributions from the 28 capitals, which are falling even as the EU’s need for funds increases.

Sustainable revenue

The challenge of finding a more sustainable funding solution for the EU has long been a preoccupation in Brussels. And the United Kingdom, as a proponent of a minimal budget and a firm opponent of any kind of pan-European tax, has always blocked progress.

But in this regard, Brexit has been a game changer. “We did not see the usual British objections to the creation of a tax to feed into the EU budget,” said a French Socialist lawmaker, who attended the conference.

“Ironically, Brexit has forced us to find an answer,” said Alain Lamassoure, a veteran French MEP who is the leading member of the high-level group on own resources (HLGOR) for the centre-right European People’s Party (EPP). In EU jargon, “own resources” refers to the bloc’s ability to finance itself independently, without contributions from the member states, which represent the bulk of the EU budget.

The departure of the United Kingdom will automatically lead the other member states’ financial contributions to be redistributed. But it will also end the infamous UK rebate. Negotiated by Margaret Thatcher in 1985, this reimbursement of part of the UK’s EU budget contribution costs the other member states dearly.

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The UK rebate “was the reason for the malfunctioning of the current system,” said Lamassoure.

Each country currently tries to make the smallest possible contribution to the common pot, while seeking to gain as much as they can from it. Bowing to pressure from the UK and other proponents of austerity, the budget has been reduced for the first time for the period 2014-2020.

By deciding to leave the EU, the UK has left the bloc no choice but to rethink this fragile funding system. “This will force the institutions to reform the national contributions,” Lamassoure said.

Towards a European tax

The interparliamentary conference raised a number of proposals for the reform of the EU’s financing, including the creation of a European tax. This is an extremely sensitive subject, as member states jealously protect their fiscal sovereignty. And decisions of this nature must be made unanimously.

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Now that the main opponent of endowing the Union with its own resources is out of the way, the question can move forward. And it is becoming more and more urgent.

“The European Union needs its own resources, rather than the contributions from member states, because the budget is exposed to the rise of populism and budgetary austerity at national level,” said Savary.

Budget crisis on the horizon

Another motivation to advance swiftly on the question is that the EU faces a repeat of 2014, when it was unable to make payments for lack of funds. Without the ability to take on debt, the EU can only pay with payment appropriations. But these are unlikely to cover the growing list of European commitments, due in no small part to the strain of the migrant crisis.

The draft budget currently on the table foresees a 6.2% cut to payment appropriations for 2017 (€134.9 billion) The European Parliament has already spoken out against the cut.

Proposal in December

Among the possible schemes for feeding the European budget supported by MEPs are the implementation of a levy on states’ tax revenues or the creation of a pan-European carbon tax or “Eurovignettes” for road users.

“The idea is to use existing taxes or those created under the community structure – on environmental or digital matters – so as to give the institutions room to manoeuvre to use this revenue,” said Lamssoure.

But while a consensus appears to have been reached fairly easily, the road towards a European tax is still a long one.

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“We will present our definitive report to the three institutions in December,” said Mario Monti, the president of the HLGOR.

“Very few subjects in European politics are as sensitive as this. So it is important to make reasonable proposals,” he said.

Streamlining the EU

Beyond suggesting new sources of revenue, the group must also come up with proposals for missions which the EU could do without. “The EU must concentrate on its core activities and install strict filters on actions that can be performed at national level. We will insist on the subsidiarity principle,” the HLGOR president said.

On the other hand, “certain activities are not managed satisfactorily by the member states (the fight against terrorism, military operations), and could be strengthened inside the EU,” he added.

The high-level group on own resources

The high-level group on own resources (HLGOR) was established in February 2014 to reflect on finding more transparent, simple, fair and democratically accountable ways to finance the EU. The group will deliver its final recommendations in 2016, and the European Commission will then assess whether new legislative initiatives to amend the own resources system are appropriate.

The group is chaired by former Italian prime minister and EU Commissioner Mario Monti and is composed of members designated by the European Parliament, the Council and the European Commission.

  • December 2016: submission of the HLGOR report.

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