The European Commission adopted, on Wednesday 22 December, proposals to create three new own resources for the EU budget, notably to reimburse the financing of the EU’s €750 billion economic recovery plan (see EUROPE 12857/12).
The first is based on revenues from the Emissions Trading System (ETS). The second is based on the resources generated by the EU Carbon Border Adjustment Mechanism (CBAM) project. The third is based on the share of residual profits of multinationals that will be reallocated to EU Member States under the recent OECD/G20 agreement on the reallocation of taxing rights (Pillar One).
Eventually, between 2026 and 2030, these new sources of revenue are expected to generate on average up to €17 billion per year for the EU budget. Since about €8 billion per year will go to the Social Climate Fund, €9 billion will remain per year in new ‘revenue’ to pay back the Recovery Plan, between 2028 and 2058.
“This well-calibrated package will not only provide a steady stream of revenue, used for the repayment of Next Generation EU, but also align the revenue side of the EU budget with the EU’s policy goals: the green and digital transitions”, said the Commissioner for Budget and Administration, Johannes Hahn (https://bit.ly/3eeZ8nA ).
“If we add everything together, we can expect revenue of around €15.8 to €17.3 billion per year (in 2018 prices) at least for the years 2026 until 2030 when we expect that the revenue flow will arise at cruising speed”, he said.
ETS. For now, most revenues from the auctioning of emission allowances are transferred to national budgets.
The Commission proposes that in the future, 25% of the revenue from EU emissions trading should flow into the EU budget. Eventually, the revenue for the EU budget is expected to reach €12 billion per year on average over 2026-2030 (€9 billion on average between 2023 and 2030).
In addition to the repayment of the Next Generation EU funds, the new revenues are intended to finance the Social Climate Fund.
The total financial envelope of the Fund in principle corresponds to an amount equivalent to around 25% of the expected revenue from the new emissions trading system for buildings and road transport. The Social Climate Fund will be financed by the EU budget: €72.2 billion in current prices (€58.4 billion in 2018 prices) over the period 2025-2032.
With the new ‘solidarity mechanism’ applied to the ETS-based own resource, the share of the contribution of low-income Member States should be limited to one and a half times their share of the EU’s Gross National Income (GNI). Similarly, to ensure that all Member States pay a fair share, the share of the ETS own resource should not be disproportionate to the relative prosperity of Member States.
CBAM. The Commission proposes to allocate to the EU budget 75% of the revenues generated by the CBAM. Revenues for the EU budget are estimated at around €1 billion per year on average over 2026-2030 (€0.5 billion on average between 2023-2030).
Taxation. On 8 October 2021, more than 130 countries that are members of the ‘OECD/G20 Inclusive Framework on Tax Base Erosion and Profit Shifting’ agreed on a reform of the international tax framework: a two-pillar solution to tackle tax evasion, which aims at ensuring that profits are taxed where economic activities and value creation occur.
‘Pillar I’ of this agreement will reallocate the right to tax a share of so-called residual profits from the world’s largest multinational enterprises to participating countries worldwide.
The Commission proposes an own resource equivalent to 15% of the share of residual profits of in-scope companies that are reallocated to EU Member States. The revenue for the EU budget could amount to roughly between €2.5 and €4 billion per year.
Legislative process. The Commission proposes to amend the Own Resources Decision to add the proposed three new own resources to the existing ones.
The Commission also proposes to amend the regulation on the Multiannual Financial Framework (MFF) 2021-2027. This amendment offers the legal possibility to start repaying the borrowing for Next Generation EU already during the current MFF.
At the same time, it proposes to increase the relevant MFF expenditure ceilings for the years 2025-2027 to accommodate the additional expenditure for the Social Climate Fund. The ceilings would thus be increased by €20.9 billion (2018 prices), which corresponds to the €23.7 billion (current prices) proposed in July 2021.
The Own Resources Decision needs to be approved unanimously by the EU Council, after consulting the European Parliament. The decision can enter into force once it is approved by all EU countries in line with their constitutional requirements. The MFF Regulation needs to be adopted unanimously by the EU Council, after approval by the European Parliament.
The Commission will present, by the end of 2023, a proposal on a second basket of new own resources (including a tax on financial transactions), to reach the €15 billion per year needed to repay the €750 billion recovery fund.
The European Parliament rapporteurs for the revenue side of the budget, José Manuel Fernandes (EPP, Portugal) and Valérie Hayer (Renew Europe, France), pointed out that “the European Parliament is ready to negotiate the proposals as soon as possible. An agreement in the EU Council is needed by July 2022”. They said they regret that “we are not yet reaching €15 billion per year for the repayment of the debts incurred under the Next Generation EU Recovery Plan”.
Link to the proposals: https://bit.ly/30VkhQY (Original version in French by Lionel Changeur)