Paper suggests ways to fill gap, including taxes and overhaul of farm spending
6 hours ago by: Jim Brunsden in Brussels
Brexit risks stretching the EU’s common budget to breaking point, Brussels is warning as it braces for a clash with member states by setting out ideas to plug the financial gap.
Tapping money that the European Central Bank makes from issuing currency, and applying common energy or environmental taxes to imports are among the options that Brussels has put on the table for reforming the EU budget in a paper seen by the Financial Times.
The European Commission paper also broaches sensitive questions of how to reform EU farm spending and regional aid programmes, saying one option would be to ask national governments to part-finance some farm subsidies.
In a section likely to raise hackles in some national capitals, the paper also warns that life as a European civil servant is becoming less attractive and that “a further reduction in staff levels could jeopardise the good functioning of the EU institutions”.
“Previous reforms have reduced salaries, increased working time and pension age,” the paper says. “There is clearly a declining interest of young people from member states with relatively high per capita income to join the EU institutions . . . the trend is clear.” Brexit: let’s count the ways
The EU budget is equivalent to about 1 per cent of EU gross domestic product, and Britain’s impending departure means the EU will lose one of its main contributors. While estimates vary because some spending commitments are multiyear, a report from the UK’s House of Lords put the British contribution at 12 per cent.
The funding gap, and the possibility of a big political fight over how to fill it, is one of the main factors behind the push from EU capitals for Britain to pay a hefty exit bill as part of its Brexit divorce.
In its “reflection paper” on Wednesday, the commission will warn that Brexit comes as the EU is being asked to take on extra work. Managing migration, fighting terrorism, and defence policy have risen up the EU agenda since its last multi-annual budget was agreed in 2013.
“Hard choices will need to be made to bridge the gaps,” the draft paper says, noting that “the Union is not able to borrow, nor can it print money”.
About 80 per cent of the EU budget is financed by contributions from governments and a share of national VAT receipts, with much of the rest coming from customs revenues.
Some of the ideas for future funding hinge on the bloc agreeing new policy measures, such as a financial transaction tax or energy and environmental taxes to be applied at the EU border.
Other ideas include levies from the EU’s emissions trading scheme, and fees linked to a planned online authorisation system for people travelling to Europe. 12% UK contribution to EU budget, according to House of Lords
The paper mentions the option of transferring ECB revenues earned from so-called “seigniorage” — essentially the difference between the face value of ECB notes and coins and their production cost. Such a step would hit national central banks and normally require changes to EU treaties.
The paper also looks at how Brussels could do more to leverage its budget. The commission has already explored ways of using public money to stimulate private investment, including a European Fund for Strategic Investments launched in 2015 with the target of mobilising €315bn of funding in its first three years.
It also says governments should provide more “co-financing” to projects supported by EU “cohesion policy” funding, which accounts for a big chunk of the bloc’s budget and finances everything from skills training to road building.
Brussels will present more detailed proposals next year. The paper sets out five broad reform “scenarios”, ranging from scaling back the budget and establishing a system where groups of member states would establish common pots of money for particular projects, to a “radical redesign”.