9th Jun 2023

MEPs call for new budget money, worry about recovery borrowing

  • MEP José Manuel Fernandes (l), MEP Valerie Hayer, and MEP Johan Van Overtveldt (r), key lawmakers of the EU budget talks (Photo: European Parliament)
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MEPs are "deeply worried" that the new revenue proposed by the EU Commission will not be enough to cover the borrowing costs of the €800bn Covid-19 recovery fund.

In parallel resolutions, European lawmakers on Wednesday (10 May) called for new revenue sources to be agreed upon, warning — in a separate document — that with rising interest rates, the EU might not be able to pay the borrowing costs, or would be forced to chip it away from traditional policies, like agriculture or research.

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The parliament said, in a resolution adopted by 356 votes for, 199 votes against, and 65 abstentions, "is deeply worried" that the amounts generated by the new so-called 'own resources' will not be sufficient to cover all the Covid-19 recovery fund costs.

Repayments and borrowing costs are estimated to be at least €15-20bn per year on average until 2058. MEPs called on the commission to come out with a new batch of proposals for additional revenues "no later than the third quarter of 2023".

In 2020, the EU governments allowed the commission to borrow on the markets at favourable rates and redistribute the amounts to countries in need of funding to offset the negative economic effects of the pandemic.

The borrowing operations are scheduled to end by 2026 and the deadline for paying back the due loans and interest rates is 2058.

Own resources, which refer to the money that the EU collects directly itself, had been expected to help finance the repayment of the €800bn joint debt.

Traditionally, own resources have been based on customs duties and contributions based on the value-added tax (VAT) collected by member states, adding up to roughly one percent of EU GDP.

The commission in 2021 proposed three new sources of revenues for the EU's coffers, including revenues from the EU's carbon market, from a new carbon border levy, and from a tax targeting the world's biggest multinationals.

However, money from the carbon market, the tax on large corporations, and the carbon border tax are only expected to provide around €6.5bn a year — compared to the €15-20bn needed annually.

More proposals are expected later this year by the commission.

Adding pressure on the executive, MEPs on Wednesday called for new sources, including a financial transaction tax, a digital levy, part of the national corporate tax, a levy on share buybacks, a tax on cryptocurrencies, and a fair border tax to be paid by firms that do not pay workers enough to escape poverty as defined by the World Bank.

The parliament also suggested getting revenues from a tax on member states that have the highest gender pay gap, do not recycle enough biowaste, or waste the most food.

In the resolution, MEPs said that "new own resources are necessary to avoid the next generation of Europeans paying the price for the repayment of the principal and the interest of the funds borrowed under Next Generation EU [the Covid-19 fund], either through an increased burden on taxpayers or via cuts in regular [European] union programmes".

Portuguese lawmaker José Manuel Fernandes, the centre-right MEP in charge of the report, said: "We need true 'own resources'".

"If we do not have new own resources, either we reduce the budget, and payment of the debt will mean cuts of 10 percent to programmes like Horizon, common agriculture policy, cohesion policy, or ask member states to put more money into the budget," he said, adding: "we need new own resources which aren't a burden on citizens. If we ask member states, we are penalising citizens and small businesses".

MEPs also fear that there are not enough margins in the EU's budget that could be used to pay the rising borrowing costs, as the EU is legally not allowed to run into a deficit.

The long-term EU budget between 2021-2027 has budgeted for €12.9bn in 2018 prices (€15bn in current prices) over the seven-year period to cover the borrowing costs for the recovery fund.

This figure was based on an assumption that interest rates would gradually increase from 0.55 percent in 2021 to 1.15 percent in 2027, but now they are already at over three percent.

A call to revamp the seven-year budget was backed with 434 votes, with 99 against and 89 abstentions on Wednesday.

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