Dispute over the EU budget

 

AS GOVERNMENTS slash budgets across Europe MEPs have demonstrated their acute political insensitivities by backing a European Commission proposal to increase the EU’s budget in 2011 by 6 per cent. The move would boost the budget from nearly €121 billion this year to more than €130 billion. This figure is relatively small in comparison to national budgets – some 1 per cent of EU GDP, compared to overall public spending averaging between 45 and 50 per cent across the EU. But it is twice as much as member-states say they can afford and the dispute between MEPs, the commission and the Council of Ministers will now go to arbitration. If that does not succeed by January, this year’s budget will be rolled over, a result unlikely to displease ministers.

In part a reflection of a desire by MEPs to assert their strengthened notional role under Lisbon as the EU’s budget authority, their vote also reflects genuine anger at the welshing of member-states on commitments under the current multi-annual budget and on the extra resources required by new Lisbon institutions like the External Action Service. Centre-left politicians argue that an increase in EU spending is also needed to help offset cuts being made by many national governments which, they say, could threaten economic recovery. However, they are unlikely to prevail.

The dispute is also a piece of shadow boxing, a trial of strength, ahead of a broader debate on the shape of the EU budget for the next big multi-annual financial framework (MFF) for the 2013-2020 period. Preliminary discussions are already beginning on the issue which promises, as previous MFFs have in the past, to be exceedingly difficult, not least for Ireland in defending the future of the Common Agriculture Policy. The commission must present its specific proposals for the framework before July 1st next, but it issued a discussion document last week suggesting a review of the way the EU finances its spending.

Currently the union funds spending through national contributions largely related to GNP, and independently through what are called “own resources”, customs and excise duties collected on its behalf by capitals. The latter used to make up the bulk of revenue but direct national contributions now account for some three quarters of the budget.

Conscious of domestic pressures on direct revenue streams the commission predictably suggests, but with appalling timing, a shift to direct EU taxes. These might include a combination of options: a share of a financial transaction or activities tax, auctioning greenhouse gas emission allowances, an air transport tax, setting a separate value-added tax rate, taking a share of an energy tax or, horror of horrors, even of a corporate income tax.

It is not the first time such changes have been mooted by Brussels and each time the proposals have fallen on stony ground – member-states are understandably reluctant to cede control of revenue streams to Brussels and rightly worry that such new taxes, at a time of economic hardship, would be bitterly resented.