There’s a €60 billion hole in the European Union’s next seven-year budget that Brussels officials are hoping to plug by raising money directly, rather than relying on extra contributions from cash-strapped member states.
The catch is any proposed tax or new levy has to be signed off by all 27 national governments, who jealously guard their ability to raise revenues.
The pressure is on for capitals to agree on the size and focus of the union’s next long-term budget by the end of this year.
The European Commission has proposed a €2 trillion budget that puts more cash aside for a competitiveness fund, defence and border security, but trims back Common Agricultural Policy (Cap) funding.
There is inevitably a gap to be bridged between the competing demands for the EU to throw money at an expanding list of challenges and the amount member states are willing to directly chip in to the common pot.
Ursula von der Leyen’s commission wants a green light for the EU executive to raise money, or so-called “own resources”. She has put several options on the table, ideally intended as a package.
They include an annual levy on large corporations with a turnover of at least €100 million, which EU officials estimate would generate about €6.8 billion a year.
Another idea is for a portion of excise duty charged on cigarettes to flow into the EU budget, which could raise €11.2 billion.
The commission has suggested earmarking money from EU emissions allowances that businesses in certain industries need to buy to offset their climate impact. This would raise more than €9 billion. A proposed tax paid by member states on electrical waste that is not properly recycled or collected would drum up another €15 billion.
Separately, the European Parliament has suggested collecting a digital levy from large online platforms, a separate levy on online gambling and taxing cryptocurrency trading profits.
One senior diplomat deep in the weeds of the budget talks said these options were the chips on the board. “Should there be perfect ‘own resources’ out there that no one has thought about, we will certainly look at them,” the official said.
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The “own resources” debate raises its head each time the EU has to negotiate a new budget every seven or so years. It often leads nowhere.
The proposed ideas would need to command the support of all 27 national governments, a majority in the European Parliament, and be rubber stamped by each national parliament. That’s a tall order.
The Irish Government has previously opposed talk of putting a levy on tech firms. Southern states do not like the proposed excise tax on cigarettes.
Siegfried Mureșan, a centre-right Romanian MEP, who is the parliament’s lead negotiator on the budget, said a blanket charge on large corporations would be “counterproductive” to efforts to make Europe more economically competitive. Many governments will share that assessment.
Mureșan likes the sound of a digital levy limited to the tech giants which, he said, amounted to a “tiny little fee” for access to the massive EU market. The fundraising measure would be popular with MEPs, he added.
Finance ministers are instinctively suspicious that, rather than suggesting genuinely new ways to raise money, proposals from Brussels really divert potential revenue away from national coffers and into the bloc’s joint budget.
Getting everyone to agree on inventive ways the EU might raise anything close to €60 billion will be tricky indeed.
The alternative is to increase national contributions from the 27 member states. These are calculated according to each countries’ Gross National Income. There will also be stiff headwinds there.
A coalition of fiscally conservative countries – Germany, the Netherlands, Denmark, Sweden and Austria – want the overall budget to be significantly scaled back.
A revised €1.7 trillion package is still viewed as too expansive by the “frugal” camp, while countries in eastern and southern Europe feel that latest draft compromises on the EU’s initial ambition to do more.
The fiscal hawks will be hostile to any mention of taking on more common debt to square the budget circle. The current budget included a €750 billion recovery fund to help countries bounce back after the Covid pandemic. The frugals very reluctantly came around to the idea of borrowing the money as an EU bloc, as a once-off. A chunk of change will have to be set aside in the post-2027 budget to start paying that debt back.
Deep cuts to Cap farmer subsidies or “cohesion” funding to develop poorer regions will be opposed by countries who are net beneficiaries of the union’s budget. Something will have to give somewhere.
Any brilliant suggestions to solve the budget conundrum would be warmly welcomed. Answers on a postcard, please (using both sides, if necessary), to: European Commission headquarters, Rue de la Loi 200, Brussels, Belgium.