Time to end clientelism in Europe
06 June 2011
This month's EU Budget negotiations should seriously consider European VAT, a financial transaction tax and auctions of carbon emissions - says Petros Fassoulas
June is expected to be a hot month in Brussels. Not because of a sudden rise in temperatures, but due to the debate around the next seven-year European Union budget negotiations or multi-annual financial framework.
This is set to start as soon as the European Commission unveils its proposals on June 29. Despite the heated arguments ahead, this is a golden opportunity to change the way that the union is financed and, with it, improve the way the EU operates. Today we have found ourselves in the perverse situation where about 85 per cent of the budget comes from member states - if one also takes the value added tax resource in account.
That was never the intention and the European Union Treaty actually states that "the EU budget shall be financed wholly from own recourses". Instead, the current system has created a complex web of political compromises between member states - made up of rebates, exceptions and correction mechanisms. These are based on the "fair return" principle, which sets in opposition the so-called "net contributors" to "net recipients".
It is imperative we replace this opaque system with something that resembles what the treaty originally intended. The EU budget needs its own resources if it is to function in a more transparent, simpler and above all fair way. The commission presented six alternative ways of raising the EU's own recourses when it published its communication on the budget review. Among them were the auctioning of greenhouse gas emissions allowances, a financial transaction charge and a separate European VAT rate.
The European Parliament's report, in April 2011, reviewed the commission's proposals and focused on the proposal for a European VAT rate. It would mean that a national rate and a European rate would be applied and detailed at the bottom of bills, allowing citizens to know precisely their contribution to the EU budget. The beauty of this idea is that it should not lead to an increase in the VAT rate, as revenue generated would be deducted from national contributions. Collection costs would be low as the tax already exists, albeit in a different form.
So a rate of 1 per cent, for example, could generate an income of €57 billion per year - slightly less than half of the current EU budget. If we added to that the proceeds from auctioning of carbon emission allowances and a very small financial transaction tax, we would find ourselves in a situation whereby member states contributions could disappear completely.
Moving to such a direct form of EU funding would signal an end to the clientelistic relationship between the union and its member countries - and at the same time strengthen the direct connection with citizens. For they are going to be responsible for financing the EU budget they benefit from – lest we forget that about 85 per cent of the union's coffers are spent on the people, with a significant proportion of what is left spend on humanitarian assistance.
Such a system would also equip the union with the necessary financial recourses and provide pan-European solutions for the challenges faced by the EU as a whole. Investment in combating climate change, research and development, transport infrastructure, interconnection of energy grids, measures that increase competitiveness and intra-EU trade makes more sense when it happens at the supranational level.
That way, we offer European added value and provide member states with savings - due to the economies of scale generated. So the more we invest in the EU budget, the more we will cap the burden on national budgets by moving more spending to the European level. Many projects produce better results when they happen across borders. This summer could be the dawn of a new age for the union. Let's hope that our political leaders possess the vision to make the changes necessary to transform Europe once and for all.
Petros Fassoulas is chairman of the European Movement in London, in the UK
June is expected to be a hot month in Brussels. Not because of a sudden rise in temperatures, but due to the debate around the next seven-year European Union budget negotiations or multi-annual financial framework.
This is set to start as soon as the European Commission unveils its proposals on June 29. Despite the heated arguments ahead, this is a golden opportunity to change the way that the union is financed and, with it, improve the way the EU operates. Today we have found ourselves in the perverse situation where about 85 per cent of the budget comes from member states - if one also takes the value added tax resource in account.
That was never the intention and the European Union Treaty actually states that "the EU budget shall be financed wholly from own recourses". Instead, the current system has created a complex web of political compromises between member states - made up of rebates, exceptions and correction mechanisms. These are based on the "fair return" principle, which sets in opposition the so-called "net contributors" to "net recipients".
It is imperative we replace this opaque system with something that resembles what the treaty originally intended. The EU budget needs its own resources if it is to function in a more transparent, simpler and above all fair way. The commission presented six alternative ways of raising the EU's own recourses when it published its communication on the budget review. Among them were the auctioning of greenhouse gas emissions allowances, a financial transaction charge and a separate European VAT rate.
The European Parliament's report, in April 2011, reviewed the commission's proposals and focused on the proposal for a European VAT rate. It would mean that a national rate and a European rate would be applied and detailed at the bottom of bills, allowing citizens to know precisely their contribution to the EU budget. The beauty of this idea is that it should not lead to an increase in the VAT rate, as revenue generated would be deducted from national contributions. Collection costs would be low as the tax already exists, albeit in a different form.
So a rate of 1 per cent, for example, could generate an income of €57 billion per year - slightly less than half of the current EU budget. If we added to that the proceeds from auctioning of carbon emission allowances and a very small financial transaction tax, we would find ourselves in a situation whereby member states contributions could disappear completely.
Moving to such a direct form of EU funding would signal an end to the clientelistic relationship between the union and its member countries - and at the same time strengthen the direct connection with citizens. For they are going to be responsible for financing the EU budget they benefit from – lest we forget that about 85 per cent of the union's coffers are spent on the people, with a significant proportion of what is left spend on humanitarian assistance.
Such a system would also equip the union with the necessary financial recourses and provide pan-European solutions for the challenges faced by the EU as a whole. Investment in combating climate change, research and development, transport infrastructure, interconnection of energy grids, measures that increase competitiveness and intra-EU trade makes more sense when it happens at the supranational level.
That way, we offer European added value and provide member states with savings - due to the economies of scale generated. So the more we invest in the EU budget, the more we will cap the burden on national budgets by moving more spending to the European level. Many projects produce better results when they happen across borders. This summer could be the dawn of a new age for the union. Let's hope that our political leaders possess the vision to make the changes necessary to transform Europe once and for all.
Petros Fassoulas is chairman of the European Movement in London, in the UK
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