The HLG REPORT ON OWN RESOURCES Thinking ahead for Europe The HLG REPORT ON OWN RESOURCES REINVENTING THE WEEL AND THE BREXIT EFFECT Jorge Núñez Ferrer CEPS_thinktank www.ceps.eu

The 4 budget Musketeers

FIRST PROBLEM Member states never cared for secondary effects of the EU budget (local savings, investments, etc.). Using this is a lost case. But the budget resources are completely out of line with reality even looking at financial flows, these are not only public The thinking of MS and even of many academics still consider net balances ‘rational’, some still propose automatic correction mechanisms. SOLUTIONS 1: Make the present own resources impossible to continue by ensuring a veto (Brexit may help)... and I will show how. We cannot have another 10 years of the same.

Why? How? New budget old logic The EU budget has reformed substantially, but the net balance approach is based on old objectives of local-value expenditure with limited co-financing. The EU Value Added of expenditures has increased substantially – many objectives are not local choices. More has to be done. The financial investment flows caused by the budget are large. EFSI mobilized funds alone similar to Cohesion Policy size, if continued after 3 years even more Many of the reinforced budget areas benefit wealthier MS. The new realities of the budget and new needs need to be reflected in the OR

EFSI example

EFSI example - Pipeline Some have been approved recently

EFSI SME

RSFF

Research Who is actual ‘net’ beneficiary of the EU budget? Impact on business high (x13 according to EC and OECD modelling) Etc. etc. Who is actual ‘net’ beneficiary of the EU budget?

An Own Resource… for What? The budget is out of line with European objectives of 2020 The EU lack of instruments means budget fails on the common market, it fails on the common borders, it fails on security. We cannot continue failing in areas the citizens are really concerned of. With a net balance approach we will continue failing… but can a tax solve this... No! Taxes have been analyzed for decades and nothing has advanced, it has retrograded We need quit pro quo process linking changes in resources to changes in expenditures.

Failure

We also need to realise that the EU budget is just a fraction of the EU Operations The EU has multiplied external funds and twisted the budget to squeeze some money out.

EU budget Responses within a box with lots of satelites. External to MFF flexibility instruments increase Focusing Structural and Cohesion Funds on Europe 2020 Reinforce strategic requirements Smart specialisation, energy , climate… FIs External action Trust Funds “Blending facilities” Enhanced FLEXIBILITY EFSI EFSM Horizon 2020 “mission oriented” Greening CAP and Rural Development Despair: ESM EUROZONE BUDGET?

Steps ahead Focus on HOW to introduce new resources in exchange for fundamental reform. Good candidates exist: Carbon tax – aviation tax – fuel tax – ETS revenues Real VAT Corporate income tax FTT (unlikely) The resource chosen, if any, will most likely be based on political acceptance rather than the optimal criteria.

Why and how to look for package deals? Overcoming oppositions, winning support, and building coalitions. Offering reforms on the expenditure side of the EU budget, but in a dynamic process. Avoid ad-hoc, country-specific mechanisms, and also generalized rebate schemes based on some measure on net balances. CENTRAL IS MID TERM REVIEW – if necessary a process proposal

Reforms for MFF EU Budget has to focus more on real problems at EU level. EU budget is still largely pre-allocated although shift to centrally managed funds has increased. Approach: Mid-Term cannot be based on superficial justifications for “cohesion”, “agriculture”… etc. EU budget is historical accumulation of ‘compromises’ and ’concessions’ leading to specific local value expenditures. Mid -Term needs to go to the level of individual measures. Focus budget on European Value Added and European challenges: Funding in MFF for 2014 for Migration and security was 0,3% of budget!

Package system Agree on EU value added headings to finance with new OR New resources linked to steps in expenditure reforms Increase EU Value Added Link any corrections to specific contentious headings Large rapid deployment heading or emergency margin CAP co-finance system PACKAGE Corporate income tax with common base Exclusions from stability pact of OR GNI residual based on other criteria Carbon tax, maybe with investment based compensations GNI system to compensate for resources distribution Real VAT rate share FTT GNI substitution for non participating MS Make ETS a resource

IT IS NOT ONLY about MFF: The Budget is Dangerously Exposed The EU budget has been flexed to the maximum Over 12 billion Euro mobilised under all possible flexibility instruments until now For this year room is VERY limited, we need solutions very soon We need to avoid ransacking H2020 and CEF for funds We need to find a way to address emergencies quickly and without unnecessary tensions.

What about Brexit? We should thank Margaret Thatcher for introducing the rebate. The impacts on the budget will be manageable. Until 2014 it was a net of approximately 7 billion, 2015 was particular for the one off payment of EUR 2 billion. The countries that had a rebate on the rebate will be affected most from the changes and this may create some problems. Brexit creates de facto an interesting opportunity for reform.

www.ceps.eu Jorge.nunez@ceps.eu @CEPS_thinktank Tel: +32 2 229 39 11 1, Place du Congrès 1000 Brussels

What approach? Agree which headings are of EU Value added and take them out of any net balance discussion or rebates. Horizon 2020, CEF, JHA, part of SF, etc. Corrections can exist in exchange of reforms of remaining policies, they phase out in line with changes in expenditure. Proposed for UK, but may still be needed. Reforming EU policies (CAP and/or structural funds) to increase European Value added. Financing the CAP based on solidarity, a cohesion based co-financing. Creating a large emergency fund for quick reactions. Possibly expanding other policies, such as security, Frontex, etc. Open questions: A separate budget for the Eurozone? We need to separate and clarify.