Dr Giacomo Benedetto Jean Monnet Chair in EU Politics Route to reform of the EU’s budget revenue FAIRTAX H2020 conference : Vienna, 19 September 2016 Dr Giacomo Benedetto Jean Monnet Chair in EU Politics

Contents Structure of the Budget Crisis and challenges History and Packages British rebate and its lessons Reform of Own Resources

Multiannual Financial Frameworks Own Resources: Revenue Structure of EU budget 1 Multiannual Financial Frameworks Annual Budgets Own Resources: Revenue Traditional Own Resources VAT call rate of 0.3 GNI % transfer Rebates

De facto budget, not 1% GDP, c. 3% GDP Structure of EU Budget 2 Outside the Budget: The Juncker Fund (EFSI): leverage European Stability Mechanism (ESM) European Development Fund (EDF) Trust funds De facto budget, not 1% GDP, c. 3% GDP Not all net balances the same – contrast agriculture and research

Crisis of the Budget Redistribution vs. Public Goods Need for flexibility for emergencies Ambition for digital and energy markets Emergency of: Euro crisis and Greece Migration Brexit Net Balance, British-type demands Budget vetoes and delays But British rebate abolishes itself?

Budget packages 1970: permanent finance for agriculture, some power for European Parliament , enlargement to UK 1984: rebate for UK, VAT call rate to 1.4%, enlargement to Spain and Portugal 1988: after Single European Act, double of ERDF spending, increase spending from 1.0 to 1.3% GNP, cap VAT contribution at 55% GNP, 5-7 year planning periods

Interinstitutional conflict Commission and EP in Luxembourg Treaty 1970 wanted power to set own resources without votes of national parliaments, with only 2/3 majority in Council Commission in 1975 Brussels Treaty wanted to give EP power to set VAT call rate by 3/5 majority Commission and EP wanted EEC to be able to borrow

British rebate 1984: 1 EP demands: Commission proposal: rebate only in form of extra spending (support of Commission) annual approval of rebate by Council and EP (support by Commission) 3-year sunset clause and one-off payment new revenue to be decided by EP-Council co-decision Commission proposal: Rebate only if EAGGF (agriculture) > 33% spending Rebate to be 33% of net contribution, NOT 66%

British rebate 1984: 2 Council decision: Rebate in unconditional cash, NOT through budget spend Value: 66% (not 33%) of net contribution Permanent but conditional on 1.4% VAT call rate and enlargement to Spain and Portugal Any change set by unanimity and ratification in national parliaments No incentive to reduce agricultural spending No sunset clause – other than minimum 1.4% VAT call rate Over time, smaller rebates for Germany, Austria, Netherlands, Denmark, Sweden. Net balance mentality enshrined.

Relaunch the EU with a new budget?

High Level Group on Own Resources Own Resources Reform 1 High Level Group on Own Resources Escape net balance; find EU taxes? EU responsiveness through independence of budget? Interparliamentary conference on own resources, 7-8 September 2016 Report published in December 2016 Avoid pitfalls like the British rebate, consider historic advice of EP and Commission, use sunset clauses if necessary

Reflection of single market: CIT, VAT, Carbon Tax Own Resources reform 2 Reflection of single market: CIT, VAT, Carbon Tax Harmonized tax bases, technical ease: VAT and maybe CIT Technical difficulty: FTT Political difficulty: VAT Steering effects: FTT, Carbon Tax Political demand: FTT, Carbon Tax, CIT

Own Resources reform 3 Rebates on gross contributions not net contributions, carbon tax effect disproportionate on less prosperous member states Rebate for Poland, Czech Republic and others: Call it a fund, to co-finance existing policy Or forget co-financing, make it conditional only on not cross-subsidy of coal or carbon intensive sectors

Aviation tax rather than kerosene tax Own Resources reform 4 Aviation tax rather than kerosene tax Aviation benefits from single market Environmental/climate change impact: Pigovian effect (Krenek and Schratzenstaller 2016) No significant tax on flights, could be collected NOT via national treasuries A Carbon-based Flight Ticket Tax (Krenek and Schratzenstaller 2016)? Or a flight tax levied by an EU agency? Unfair impact on geographically isolated countries: Malta, Cyprus, Greece, Ireland, Finland?