Session 3 A - Is there a need to reform the Own Resource System? Dirk H. Kranen Head of Division - Federal Ministry of Finance Germany

Is there a need to reform the Own Resource System? Positive aspects of the current system: EU-Budget is fully financed – No deficit! European Parliament and European Council have equal rights in deciding on the annual EU-budget – No lack of democratic control! Member States have the obligation to finance all EU-expenditures – No dependency on national decisions! GNI-Own resources reflect the differences in economic strength of different Member States – Fairness!

“Problems” of the current own resource System It makes the negotiations for the budget complex and driven by national interests. It makes the financing of the budget difficult to understand for people and businesses. It gives rise to a complex system of national rebates. Kristalina Georgieva Vice-President of the Commission September, 7th, 2016

Net balances thinking – Fact check 1. “It makes the negotiations for the budget complex and driven by national interests.” Budget negotiations are always complex. Every national budget or municipal budget is the outcome of complex negotiations. Common pool problem would persist. Alternative financing cannot change it.

Difficult to understand – Fact check 2. “It makes the financing of the budget difficult to understand for people and businesses.” Is there a need to understand the financing of the budget? GNI-own resources indicates a strong relation of national income and

Complex rebates – Fact check 3. “It gives rise to a complex system of national rebates.” Rebates are corrections on the income side. Alternative: Spend even more! Or: Spend only on goods with High European Public Value

Misconceptions EU tax is necessary to provide more money for Europe. - wrong The current own resource system is not democratic since the European Parliament has only a little say in own resource decisions. - wrong It is not transparent for European citizens. - wrong

Real underlying intention Call for reform of EU-own resource system is not a call for more transparency or less net-balance thinking. It is a call for substantial more power of the EU-Level: the power to levy taxes

Research Project: Future of EU-Finances Ignite economic research in the field of the own resource system 10 economists covered several topics: Legal restrictions Principle of subsidarity EU-Budget as automatic stabilizer Political economy of EU-Financing Transport Fuel Tax, Electricity Tax How to reform the EU-Budget

Research Project: Main findings Current own resource system works well. No financing problem of the union. Netbalance thinking is not rooted in the own resource system. Wrong priorities in the EU-Budget, namely the replacement of national spending by EU-spending, is the real reason for net balance thinking. Common pool problem: Every country tries to get out of the budget as much as it can. GNI own resources is a automatic stabilizer.

Research Project: Main findings Current own resource system is in line with the principle of subsidiarity. EU-taxes would create nen problems, especially redistribution problems Current discussion to reform the own resource system is not about the own resource system. It is about a power shift between the national and the EU-level.

German position Current own resource system serves its purpose well. The system should be kept but reformed. Abolishing of the VAT-own resource GNI-own resource should be recognized as fair and best own resource Medium objectives: No rebates necessary

Germany’s proposals to reform the EU-Budget European money should be spent on things that deliver a clear European added value. EU’s budget should support the respective Member States to implement their country-specific economic policy recommendations. More flexibility of the European budget

Thank you Speech of Dr. Wolfgang Schäuble http://www.bundesfinanzministerium.de/Content/EN/Reden/2016/2016-01-14-future-of-eu-finances.html Fi­nal re­port on the re­search project on the fu­ture of EU fi­nances http://www.bundesfinanzministerium.de/Content/EN/Downloads/2016-01-14-final-report-future-eu-finances.pdf?__blob=publicationFile&v=3