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23rd Jun 2018

EU should raise own taxes, says report

  • "The Union must mobilise common resources to find common solutions to commons problems," says the report by the Monti group. (Photo: snorski)

The EU should raise its own taxes and use Brexit as an opportunity to push for the idea, a report by a group of top officials says.

"Time is ripe for a comprehensive reform of the EU budget," says the report of the high-level group on own resources, also known as the Monti group, after the name of its chairman, former Italian prime minister and EU commissioner Mario Monti.

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  • Former Italian PM and EU commissioner Mario Monti chaired the high-level group launched in 2014 (Photo: European People's Party - EPP)

"The Union must mobilise common resources to find common solutions to common problems," says the document, seen by EUobserver.

"It is now up to the policy makers and budgetary actors to make some courageous choices and find the necessary momentum to adapt the EU budget to its time and challenges," it says.

The Monti group was established in 2014 to find "more transparent, simple, fair and democratically accountable ways to finance the EU".

The group's members, appointed by the EU commission, council and parliament, include EU commissioners Frans Timmermans and Pierre Moscovici, former budget commissioner Kristalina Georgieva and the liberal group leader in the European Parliament Guy Verhofstadt.

Their report, which was presented to MEPs on 12 January and will be presented to the college of commissioners on Tuesday (17 January), notes that the current EU budget is flawed because of it relies too much on financial contributions sent directly by member States.

Some 80 percent of the EU budget currently come from member states through a complicated system which also includes rebates for several countries - Germany, Netherlands, Sweden, Austria, and, above all, the UK.

The document notes that the system pushes member states to consider their contribution in terms of "net cost" or "net benefit". It says it is "misleading" because it ignores that the EU-wide policies funded by these contributions benefits for each of the 28 member states.

It notes that this has "transformed the EU budget, and by extension the EU, into a zero-sum game instead of the win-win arrangement it is expected to be."

About two months before the UK starts its exit talks with the EU, the Monti group says that Brexit gives "a unique window of opportunity to review how we measure the real costs and benefits of the EU" and calls to abolish all rebates.

New resources

The report recommends to fund the EU budget through "a combination of new resources stemming from production, consumption and environmental policies" that would not totally abolish national contributions.

For example, a carbon pricing scheme or a levy on motor fuel would help to reach the various EU ecological targets.

The paper also proposes a EU-level corporate income tax that would be combined with a common consolidated corporate tax base (CCCTB), an EU scheme to simplify all corporate tax systems in the EU.

But this would be politically difficult, as some EU countries are traditionally reluctant to tax harmonisation," especially Luxembourg, Ireland, Cyprus and Malta, which have low corporate taxation rates.

Other proposals include a bank levy, a financial transaction tax, or a European VAT that would top national VATs.

The Monti group insists that the goal of its proposed reforms is not to increase the overall tax burden on European citizens.

It says that any new EU levy should be compensated by a decrease in national taxes and that member states's contribution would be lowered.

"The structure of the EU financing does not have an impact on the EU budget," it says.

Creating new EU levies would be "complicated", said an EU official who spoke anonymously. "Raising new taxes might not sound very appealing at first, so we will have to explain carefully that the overall tax burden is not supposed to increase."

'Realistic expectations'

The new budget EU commissioner Guenther Oettinger said that the report was "of great quality".

"I think that it is expressing some realistic expectations, and I believe that some of its proposals could be accepted," he told MEPs at an EU parliament hearing last Monday (9 January).

Reforming the EU budget system however requires the unanimity of the 28 member states and would have to be ratified by national parliaments.

Raising new taxes is "completely unnecessary," German deputy finance minister Jens Spahn said last week, adding that "It shouldn’t be about more money for the EU budget, but about using the resources better."

Monti admitted on Thursday that the issues was "sensitive" and that it was "understandable that there might be initial reaction from a negative and sceptical nature."

"We believe that our work will be able to provide inspiration and concrete ideas to various sensitivities," he told journalists after presenting the report to MEPs.

The document will now be analyzed by the European Commission before it presents its proposal for a post-2020 EU budget later this year.

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