Sunday

7th Jun 2020

Opinion

What the Dutch don't get about the EU budget

  • According to Dutch PM Mark Rutte 'we are net payers and I don't see why we have to pay more'. Thanks to profit-shifting of multinationals that statement does not hold (Photo: European Parliament)

In the US we have the primaries and presidential elections this year but in the EU the budgetary negotiations will make for a good reality TV. Some will be losers, and some will be winners.

Dutch prime minister Mark Rutte and his allies from Denmark, Sweden and Austria for sure want to be winners and say that the next European budget should be smaller because of Brexit.

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This is the Europe's 'Frugal Four', which braces itself for its bloodiest-ever round of budget talks in Brussels. Germany passed on the chance to be at the front of the fight, and seems more neutral (with some former Eastern states of the country still receiving cohesion funds).

Charles Michel, head of the European Council, wants to end the 'battle-royale' mayhem this February. Many see that as very optimistic. He is a seasoned negotiator but this will be just his second time as the host to all European leaders.

The Croatians, which have the rotating presidency, also want to finish the talks soon, as well as the group of countries calling themselves 'Friends of Cohesion' - which consists of 15 countries that benefit directly from cohesion policy, such as Portugal, Poland or Hungary.

But make no mistake: it took about two-and-a-half years to reach compromise on the previous multiannual financial framework (MFF), for 2014-2020.

The range of negotiations is between 1.00 percent and 1.11 percent of EU-27 gross national income (GNI) - which appears to conflate two well-known positions.

According to Rutte it's only logical that the budget should shrink after Brexit. And within that smaller budget it's only logical that wealthy states should pay approximately the same amount as before and still get the famous rebate.

This is the first thing that the argument made by the Dutch politician gets wrong.

For the EU Commission the rebates given first to the UK in 1984 will disappear with the Brits in 2020. Rebates and discounts granted to other countries, including Austria and Germany, are also up for the chop.

The commission says the benefits need to be scrapped in order to simplify the complex EU financial systems. Concessions made to the UK did not make it more loyal to the European project.

The second issue with the Dutch approach is calling themselves a "net payer". According to Rutte "we are net payers and I don't see why we have to pay more". Thanks to profit-shifting of multinationals this statement does not hold.

Thomas Piketty made the opposite argument in his works. Add to that the increased trade - for each euro spent another one and half is created in trade in Netherlands. Everybody in the single market with the help of the cohesion policy is a "net receiver".

Moreover, if we would count the influx of immigrants to the Dutch labour market (for example, 185,000 Poles and more than 330,000 immigrants from "net receivers") they created approximately €15bn of value added to the Dutch economy in 2018 (almost 2 percent of GDP).

That is a bit more than the €7bn contribution that Netherlands pays, and still more than the possible €10bn under the commission's plan.

Polish, Hungarian veto?

There are some fears that countries such as Poland and Hungary could derail the budget process by threatening to veto the European Commission's proposal to link EU funding to sound financial management and judicial independence.

The Dutch are for this solution because "people of Europe can flourish only if the rule of law applies in all member states. If our citizens can trust each other's legal systems."

This is the third issue that is somewhat wrong. If we are to enforce rule of law why is the only penalty provided for the poorer countries?

If there would be a discussion about the issues connected with rule of law in the Netherlands, Austria, Malta or Italy the commission would not have tools to use. Both poor and rich governments need to be held accountable if they break the law. We need a just system in the justice department.

Rutte and some other European politicians think it is time that the old European economic model of subsidising agriculture gave way to a new economy, based on knowledge and innovation.

A great cause - if Europe were not an agricultural superpower.

People often think that not much changes in European agriculture. This is the fourth argument far from true. Farming is one of the most innovative economic sectors in Europe - think about drones monitoring our crops, waterbeds for cows or innovations in plant-breeding.

With agriculture most affected by climate change in the last years, drought and insufficient watering we might need to rethink agricultural policy - but I do not think we will manage to do that before the end of this year.

We discuss a meat tax in order to limit greenhouse gas emissions but we still want to subsidise agriculture.

To change European agriculture we need more time in order to make those changes viable.

With droughts in the last few years, some countries might have a problem to take a proposal of depleting the Common Agriculture Policy (CAP) seriously, because it would mean a lot of insolvencies in Italy or France.

Nevertheless, CAP can be used to boost innovation and mitigate climate change. Let's talk about this aspects of the policy.

The Dutch tax sandwich

Rutte is for chopping the European budget and its redistributive mechanisms.

But each year according to the Missing Profits of Nations project, the Netherlands get €7.1bn of additional corporate income tax revenues which should be payed in other tax jurisdictions.

Much of that revenue comes from those countries which are on the receiving end of cohesion policy.

According to the TAX3 commission report from the European Parliament, the Netherlands are basically a tax haven. The Netherlands 'wins' a lot of money on the single market.

There are five other EU countries which technically are tax havens, according to the parliament.

From a justice standpoint we could give the commission the power to impose sanctions on countries (including EU member states) that have been classified as tax havens, so we heal the European tax system.

Author bio

Piotr Arak is the head of the Polish Economic Institute, a public think tank in Warsaw.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

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