Opposition to EU-wide taxes 'regrettable'

Stephen Tindale argues that the debate over the EU budget should be about not just its size but also where the money is spent and how it is raised

The EU's budget is only around 1 per cent of Europe's GDP, so is not significant in macroeconomic terms. But it contains enough money to make it a potentially powerful policy tool. And arguments about money are always high politics – even more so in the current age of austerity and when there is growing hostility to Brussels in many member states.

The European Commission is due to present proposals on the budget for 2014-2020, the multiannual financial framework, by the end of June. The European Parliament's policy challenges committee has called for an increase of at least 5 per cent over the MFF period. National governments, busy cutting spending at home, are understandably reluctant to spend more money via Brussels. Several governments, including notably that of Germany which remains the EU's main paymaster, have said that EU spending must increase by less than inflation.

In the forthcoming heated arguments about the budget, politicians, officials and journalists all risk having the wrong debate. The size of the budget matters, but what the money is spent on and how it is raised matter too.

Around 40 per cent of current EU spending goes on the Common Agricultural Policy. Following the Fischler reforms of 2003, which aimed at making farm support less intrusive and distorting, the CAP is better than it was. But it still promotes intensive farming – which is bad for wildlife, the landscape and the climate. And much of the money goes to large farmers. The larger the farm, the more single farm payment the farmer gets.

These single farm payments should be phased out. Then overall CAP spending could be reduced, with money for rural development protected or even increased. Central and Eastern European member states could receive full CAP payments from 2013, as they have been promised. The commission's suggestion of further transitional arrangements after 2013 should be rejected.

The commission did propose in November 2010 a limit on the amount of money given to Europe's largest farms. The agriculture Council of Ministers rejected this in March – having apparently concluded that the age of austerity need not apply to large farmers – but farm commissioner Dacian Ciolos has said that he will continue to push for this option.

Around 37 per cent of current EU expenditure goes on the cohesion funds. Such spending must be maintained, to redistribute wealth from richer parts of the EU to poorer parts, and to stimulate economic growth in the poorer regions. But cohesion funds should be entirely dedicated to poorer member states, not poorer regions of richer member states. These regions need support, but this should come from national governments. There is no reason for it to be financed through the EU budget.

There should be more use of conditionality in the use of cohesion funds, to ensure that spending supports rather than undermines the EU's agreed priorities. For example, member states should be obliged to use the cohesion funds which are available for energy efficiency work. At present most member states choose to spend cohesion money on projects such as road building.

The EU should spend more upgrading and extending its energy infrastructure. Since 2010 the EU has been running a Strategic Energy Technology plan to expand the use of low carbon energy technologies. But no funding has been agreed. The parliament's policy challenges committee has said that investment in energy infrastructure must be increased, which is welcome. Less welcome is the committee's argument that spending on the ITER nuclear fusion demonstration should be ring-fenced. ITER accepts that the project will not feed any electricity into the grid before 2040, so not soon enough to help with the low carbon transition. The EU has already spent more than enough on this project, and should give no more money.

The MEPs argue that savings could be made in the EU's administration. So it could, by cutting apparent wastage such as the parliament's regular commute from Brussels to Strasbourg. Yet only around 6 per cent of EU spending goes on administration, so cutting administration costs will not have much impact on the overall budget.

The debate about the EU budget must cover where the money should come from, as well as how large the pot should be and what it should be spent on. The commission has proposed some new "own resources", including a carbon tax and an aviation tax. The parliament's policy challenges committee supported this. But the German and UK governments have already come out against all European taxes. This is regrettable. Both taxes could play a valuable role in climate policy. The debate about taxes needs to move beyond general stances on subsidiarity, and on to the evaluation of specific proposals.

Stephen Tindale is an associate fellow at the Centre for European Reform