ESF Committee , Brussels, 9.2.2017 Future Financing of the EU High Level Group on Own Resources Final report and recommendations Next steps ESF Committee , Brussels, 9.2.2017

Overview of the presentation Prologue: basics on the EU Budget The High Level Group on Own Resources What's the problem? Origine, Mandate and composition Conceptual and analytical approach Final report and recommendations The economic case for reform Main recommendations, encompassing both expenditure and revenue issues Clusters of 'Candidates' for new own resources Next steps Follow-up of the Report in the EU institutions? Commission proposals for the post-2020

EU Budget: overall volume Annual Budget 2017 EUR 158 billion for Commitment Appropriations EUR 135 billion for Payment Appropriations Multiannual Financial Framework 2014-2020 EUR 1 087 billion for Commitments EUR 1 025 billion for Payments equivalent roughly to 1% of EU GNI … and 2% of overall EU public spending

Where does the money come from? Own resources: Traditional Own Resources VAT-based Own Resource GNI-based Own Resource Other revenue

Where does the money come from Where does the money come from? Composition by type of source: EU Budget 2014

Breakdown by Member State: EU Budget 2014

The Logic of the Revenue Side Overall level of revenue has to equal overall expenditure in payments: ex-ante equilibrium, no deficit! Revenue items budgeted: forecasts for 'other revenue', custom duties, VAT-based OR GNI-based own resource to cover the difference Adjustments and fine-tuning in the course of budget execution: Objective is to be up to date and fair for Member States

Who decides? The ground rules are decided by unanimity in Council and ratified by the National Parliaments; Commission implements with the help and scrutiny of an Advisory Committee; European Parliament can only deliver opinion on the basic legal act; In the annual procedure, the revenue side is largely a function of the expenditure (barely debated between the EP and the Council).

Evolution of Revenue Composition

Creation and composition of the HLGOR European Council of February 2013 decided to largely prolong the existing OR arrangements, but tasked Council to further examine FTT- and VAT-based own resources; European Parliament: reform of own resources system a high priority (introduction of ‘genuine’ own resources); potential changes must be thoroughly prepared; February 2014: Commission, Council an European Parliament jointly create the HLGOR and nominate chairman Mario Monti. Each institution then designate 3 Members. The Group was given until the end of 2016 to finalise its report. Background: emergence of new priorities and challenges, strong pressure on the EU to intervene in areas which are not its core business

a Fresh Approach Initial Mandate: Group's approach as it evolved: Explore ways to finance EU budget so that it is simpler more transparent and equitable democratically accountable Group's approach as it evolved: Consider revenue side as building block in a broader reform effort Identify and keep what works well in present system Consider the broader picture: legitimacy, trust, public goods, emerging priorities Prepare the ground for a well-informed, serious and non-dogmatic interinstitutional debate 'post-2020'

Conference of 7-8 September 2016 Objective Open interinstitutional discussions with national parliaments (panels) and debates (questions and answers sessions after each panel) Provide input to the HLGOR final report and recommendations Outcome Broad support from national parliaments on new own resources to finance the EU Some traditional fault lines on expenditure reform: friends of cohesion, focus on added value

Economic rationale of the reform Functions of the EU Budget Non-cyclical, hardly any stabilization function Redistribution: … limited Allocation: finance EU policies, objectives, priorities High Level Group consensus EU budget can be used to leverage / incentivise political reforms additional investement, co-funding policies with EU focus, cross-border and single market dimensions

Economic rationale of the reform Revenue Reform can play a Role Which co-benefits? What link to policies? Reinforcing the single market, Minimising the negative effects of tax competition, Promoting sustainable policies, tax shift etc. Defining a basket of own resources? No single ideal candidate A combination of tax bases (consumption, production, environment) is most promising

Key recommendations from the HLGOR report A comprehensive reform is needed: both on expenditure and revenue side European added value of EU budget: requires more focus on investment in common public goods Own resources can also bring added value: coherence with policy objectives Overcome the fixation on ‘juste retour’: changing the current perception of the EU Budget's 'costs and benefits'; win-win instead of zero-sum; introduce 'genuine' own resources to this effect Allow for some Géométrie Variable under well-defined circumstances and for clear purposes Not a revolution: many elements of the present system work well

What's Genuine? Mapping existing and possible future income sources

Criteria as endorsed in the First Assessment Criteria which emerged in the course of the deliberations Link to policy objectives, co-benefits Sustainability Agenda Consider 'other revenue'

Follow-up on the report Commissioner Oettinger mentions report in 'Hearings' on 9 January Mario Monti presents the report to the EP (BUDG Committee on 12 January) (CoP this week) To the Commission: 17 January To the ECOFIN: 27 January Dissemination of the main messages of the HLGOR (academia, think tanks, national parliaments)  "Scene-setter" for MFF preparations

Link to the HLGOR website: http://ec. europa