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24th Jan 2021

Brussels seeks financial tax in new EU budget

Future EU spending is set to increase, focusing marginally less on agriculture and more on research, education and transport, according to European Commission proposals for the next seven-year budgetary period (2014-2020).

The draft budget also includes controversial proposals for EU 'own resources', including a tax on financial transactions and an EU-wide value-added tax (VAT).

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Presenting the document in Brussels late on Wednesday evening after an all-day negotiation with colleagues, European Commission President Jose President Jose Manuel Barroso hit out at early objections from member states.

"This is an extremely serious, credible proposal, and to say 'no' to something which was only adopted two or three hours ago is not serious or credible," he told reporters.

Shortly beforehand, a spokesman for the British government blasted the budget proposals as "unrealistic" after Britain, France and Germany last December called for a nominal freeze in future EU spending to match national austerity measures. Denmark and Sweden were also quick to criticise the plans.

Under the commission blueprint, EU spending would rise to €971.52 billion over the seven-year period, with €1,025 billion pledged in commitments. This compares with €925.5 billion and €975.77 billion under the current period (2007-2013), although there is little change in terms of gross national income (GNI).

Strongly defended by French President Nicolas Sarkozy during a recent trip to Brussels, the budget for the EU's common agricultural policy (CAP) is set to remain largely the same, although its share of the multi-annual financial framework (MFF) would decrease from 39.4 percent to 36.2 percent.

The current two-pillar structure of the CAP will be maintained, with €281.8 billion pencilled in for direct payments to EU farmers (pillar 1), and €89.9 billion for rural development projects (pillar 2). Critics say the policy is wasteful and prevents developing countries from exporting agricultural produce to the EU on a level playing field, while supporters say it helps maintains the high quality of European products and protects the social fabric of rural areas.

"EU funding makes it less expensive than 27 national agricultural policies," said Barroso, stressing the added value of the EU budget in general. A further €376 billion would go to boosting underdeveloped areas under the commission plans, with co-financing requirements relaxed for countries receiving funding support such as Greece.

The main 'winners' under the draft plans are transport, energy and information technology projects, together with research and education. The European Neighbourhood Policy is also to be boosted in the wake of the Arab Spring, with the commission pledging to maintain overseas development ahead as the clock ticks towards a 2015 deadline for completion of the Millennium Development Goals.

The proposal places funding for an international nuclear fusion project (ITER) outside the main financial framework. "ITER was a programming headache," said EU budget commissioner Janusz Lewandowski. "It is an international commitment with explosive costs, so it should be a commitment of member states."

Own Resources

As well as changes to the expenditure side, the commission documents also include two options to increase EU 'own resources', controversial in some member states who fear it will curb their control over the EU institutions.

Lewandowsk said a tax on European financial transactions could enable the EU to raise up to 40 percent of its own revenue by 2020. While Germany and France have backed the move, Britain fears it would cause an exodus of activity from the London's financial heartland unless implemented at a global level.

But Barroso insisted that the EU should not wait any longer, arguing that a unilateral European initiative would increase the chances of agreement at G20 level. The fact that some banks continued to pay huge bonuses was simply out of line with reality and "unfair for society", he said.

A second option would see the creation of a EU-wide sales tax. The new VAT would be levied at a fixed percentage by governments and transferred directly to EU coffers. Current member state contributions based on VAT would be abolished.

The commission also said that it wanted to simplify the rebate system through a new practice of annual lump-sum reductions for Germany, Britain, Sweden and the Netherlands.

After a legendary battle with other member states, former British prime minister Margaret Thatcher won an annual adjustment in 1984 to compensate for the fact that Britain paid more into EU coffers than it received. The cheque is currently worth over €3 billion a year.

Wednesday's proposals are only the start of a lengthy negotiation between member states and the European Parliament over the future EU spending plan, with a final agreement expected at some point in 2012.

MEPs have already insisted that they want a five percent increase in the long-term budget, with the incoming Polish EU presidency planning to hold a meeting between all parties late this autumn.

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