In its adoption, on Wednesday 26 June, of its reflection document on the future of the EU budget, the European Commission has presented several options involving a cut, post-2020, in the funding earmarked for traditional EU policies, the common agriculture policy (CFP) and cohesion policy (see EUROPE 11816). These cuts are absolutely necessary to pay for the EU’s new priorities, such as defence, security, tackling terrorism and managing flows migrants and refugees.
The Commissioner for the Budget, Günther H. Oettinger, told the press that with this reflection document, the Commission has started preparations for the budget of the EU of 27, “as the UK will be leaving us soon”.
The reflection document (the fifth and last stemming from the White Paper on the future of the EU published at the end of March) stresses that the EU budget has continued to represent a small proportion of total public expenditure in the EU, equivalent to less than 1% of all income generated in the EU and no more than around 2% of total EU public spending. This proportion has fallen over time. The EU budget has supported the European response to the refugee crisis and the threat of organised crime and terrorism. The money earmarked for security and migration has doubled, for instance, to support the new European border guard and coastguard agency, and to help EU countries which have been overwhelmed by arrivals of refugees. Responding to these crises has pushed the flexibility of the budget to its limits, the document stresses.
Hard choices. Hard choices will need to be made, the reflection document states. Can Europe deliver on its existing policies whilst simultaneously dealing with new priorities, all with a shrinking budget? If not, where can cuts be made and ambitions scaled back? Or should the gap be bridged, either by increasing the contributions of the 27 member states, using alternative sources of revenue or a combination of the two?
The fact of the matter is that when the UK leaves the EU in 2019, the EU budget will lose between €10 and €11 billion a year, Commissioner Oettinger said. Moreover, the cost of the EU’s new priorities have been put at €15 billion a year. “We are going to have to do more with less money. There is no way round it, we will have to cut the CAP and cohesion expenditure”, said a Commission source. Oettinger laid great emphasis on the added value of each euro in the EU budget. “Reducing expenditure and making redeployments will be necessary over the next 10 years”, the Budget Commissioner warned. “We cannot hide our heads in the sand”. Additionally, the new priorities will call for fresh money, he stressed; hence his ideas to reform the system of the own resources.
For every €100 they earn, European citizens give back on average €50 in taxes and social contributions and only one of these goes to the EU budget, with the other 49 remaining in the capitals of the EU member states, the Budget Commissioner explained.
Own resources. Oettinger argues that it will be necessary to look at options to diversify the sources of revenue. The Commission suggests reforming the current own resource of VAT and removing all rebates (including the British rebate, which will go when the UK leaves). In terms of possible new resources, the Commission lists: - common energy or environmental taxes to ensure conditions of fair competition between businesses and to contribute to the international fight against climate change; - a percentage of the common corporate tax base or of the financial transactions tax; - seigniorage revenue (from issuing currency); - in the longer term, own resources derived from the proceeds of auctions under the emissions quota trading system, premiums on vehicle emissions and, even further down the line, fees paid by persons crossing an EU border under the future European travel identification and authorisation system (ETIAS) or other such fees.
CAP reform. The document refers to the work underway to update and simplify the CAP. Among the options under discussion, there are proposals to better target direct payments to ensure income for all EU farmers, particularly in remote regions and on the poorest holdings. The document stresses that a solution of this kind could involve reducing payments to the largest farms.
One solution to be explored would be to introduce a national co-financing share for direct payments, in order to retain the current overall level of support. This fairly controversial option was referred to by Commissioner Corina Crețu at the press conference. It is possible to improve the results of this policy still further by providing farmers with additional incentives to supply goods and services in relation to the environment and the climate. Farmers should be encouraged to invest in new technologies and protecting the environment, as part of the rural development policy, by means of incentives based on contracts. The current administrative burden would be considerably reduced for all farmers.
Major upheaval in sight for the cohesion policy. Alongside the CAP, the other major expenditure item for the EU, the cohesion policy, is also in the Commission’s line of fire. For instance, the institution does not shy away from referring to an end of total coverage for the European territory, or tightening up the conditions for structural and investment funds to be allocated on the rule of law criterion.
The document also refers to the creation of a single investment fund, increasing the national co-financing rates and a “regionalisation” of the country-by-country recommendations. It also puts forward the idea of creating a new fund to support structural reforms and provides for the possibility of introducing new criteria in allocating the budgetary envelopes (see other article).
External policy. The document moots a reduction in the number of instruments for external policies, but increasing their flexibility. The Commission highlights the disadvantages of embedding the European Development Fund (EDF) in the EU budget and the MFF: a number of existing activities, such as the African Peace Facility, may not be compatible with the EU budgetary rules.
Five scenarios. In line with the structure of the White Paper on the future of the EU, the reflection document presents five scenarios comprising various levels of cuts to CAP expenditure and cohesion policy credits: under the status quo scenario, the Commission refers to a drop in the relative shares going to the agriculture and cohesion policies in order to pay for new priorities: under the ‘doing less together’ scenario, the Commission anticipates a considerable reduction in the amounts earmarked for agriculture and cohesion; only under the ‘doing much more together’ scenario is there the possibility of increased money for the CAP.
A tight timetable. Ahead of the forthcoming multi-annual financial framework, the Commission will look at all reactions and responses to the White Paper and reflection documents. This will enable it to present its proposals on the MFF “around mid-2018”, according to the document. In any event, it will be necessary to await the results of the Brexit talks before preparing the post-2020 MFF, the Commissioner concluded. He expressed his hopes that the negotiations will be concluded ahead of the European elections of May 2019. On the term of the future framework, the Commission referred to three scenarios: seven years (as currently), five years (as the European Parliament, in particular, is calling for) or 5+5 years (with revision after five years). (Original version in French by Lionel Changeur, with Pascal Hansens)