European Policy Centre

Reform of the EU Budget – an Opportunity for a Radically Different EU?

12 October 2007

Fabian ZuleegSenior Policy Analyst

Radical budget reform?

‘The Comission’s approach is one of openness and no taboos’

‘Real opportunity to reflect on one of the EU’s most important tools’

‘Reforming the budget – changing Europe’

But are Member States up to it?

Key issues

• Expenditure– Total expenditure level - more or less than 1%– EU focus on non-spending areas – e.g. four freedoms– Distribution of expenditure between policy areas– What needs to be at the EU level?– Effectiveness of current spending and future implications– Addressing new policy challenges, e.g. energy, climate change

• Revenue– Raising revenue efficiently and effectively– EU resources as a political milestone

Key issues

• Economic governance – Stability vs. flexibility– Expenditure and taxes as policy instruments– Juste Retour– EU fiscal policy – in relation to EMU– Budget management and implementation– Who and how to decide future multi-annual financial frameworks

Expenditure – radical proposals?

• Increase EU budget

• Cut agricultural spending significantly

• Focus cohesion policy at areas of greatest need (not in rich MS)

• Increase resources for competitiveness, research, entrepreneurs etc.

• Competitiveness funding for opportunity rather than need

• Increase European capacity to deal with security threats

• More money for future issues e.g. food security, climate change, migration, adapting to globalisation, skills and energy

• Introduce mechanisms to evaluate spending and refocus when not working

Revenue – radical proposals?

• Genuine own resources at EU level

• Shift from GNI to VAT base, environmental taxes, corporate tax

• Visibility of EU revenue to citizens

• Low cost of raising revenue

• More independence for EU level

Economic governance – radical proposals?

• Focus on efficient and effective spending, not Juste Retour

• Policy instruments used according to what is needed, including tax

• Sufficient funding to act as fiscal lever

• Synchronising budget, EP and Commission cycles

• Bigger role for Commission and EP

BUT……..

• It’s very unlikely that we get radical change!

– Juste Retour is not going to go away

– EU budget is not going to grow (but might shrink)

– Overall bias to status quo in spending – gradual change at best

– Shift away from agriculture will continue but slowly

– Some reform of cohesion policy

– More money for new policy areas but in a tight framework

– EU taxes not acceptable to many governments and citizens

– Closed system: overall ceiling, juste retour – little room to move

– MS will not give up control over budget

Less ambitious - but more realistic• More focus on non-spending areas – completing the Single Market• Build in staggered automatic reduction system for agriculture spending• Focus current EU spending on leverage effects – change behaviour in MS• Provide the Commission with a flexible proportion of the budget • Take Juste Retour out of the equation – make it automatic and focus on

expenditure• Fix percentage affected by Juste Retour and negotiate on net expenditure• Simplify revenue on GNI basis – not move to EU ‘tax’• Develop alternative policy instruments to implement policy (e.g. reduced

expenditure mechanism rather than environmental taxes)• Clear division of roles between Council, Commission and EP• Politicising the budget – synchronised political cycles

Conclusions

• Main focus of EU policy should be on issues such as the 4+1 Freedoms, external economic relations and co-ordinating MS action – issues which do not require big budgets

• Where the budget is important, focus on achievable progress not ‘ideals’• Progress is possible but will be limited• But budget negotiations will continue• Start of a long reform process?• Key issue is for the EU to make itself relevant to what is happening now

and in future

For many at the EU level it will not go far enoughBut for many in the member states it will already be a step too far