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21st May 2022

EU unveils plan to repay Covid recovery-fund borrowing

  • No agreement on new sources of revenues will force member states to repay the coronavirus recovery grants, said EU budget commissioner Johannes Hahn (Photo: EC - Audiovisual Service)
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The European Commission presented on Wednesday (22 December) three new sources of revenues for the EU´s coffers aimed at both repaying the coronavirus recovery fund and supporting vulnerable households in the transition towards climate neutrality.

The package of so-called "own resources" includes revenues from the EU's carbon market, from a new carbon border levy and from a tax targeting the world's biggest multinationals — bringing in income up to €17bn per year, from 2026 onwards.

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Own resources, which refers to the money that the EU collects directly itself, are expected to help finance the repayment of the €800bn joint debt raised by the EU for its post-pandemic recovery package.

EU countries, the EU executive and the MEPs agreed to introduce new own resources in 2020, but some of the ideas have proved to be politically controversial.

The EU Commission has proposed that 25 percent of revenues from the cap-and-trade EU Emissions Trading System (ETS) should flow into the EU budget, generating €12bn annually, on average, from 2026 to 2030.

ETS revenues, which are largely transferred directly to national budgets, are expected to rise since emissions trading will also apply to the maritime sector, buildings and road transport, and payments from airlines are expected to increase.

The bloc's carbon market, however, has become the subject of intense debate for some member states who claim that raising carbon prices are increasing households energy bills. The EU's carbon price reached a record high of over €90 per tonne this month.

The so-called carbon border adjustment mechanism, which will set a new levy on imports of iron, steel, cement, fertiliser, aluminium, and electricity, will also be part of the new own resources and it is expected to provide €1bn per year on average over 2026-2030.

The new tax, which was presented earlier this year, is seen as a key tool to prevent businesses from transferring production to non-EU countries with less strict climate rules - dubbed 'carbon leakage'.

But this mechanism has been criticised for potentially having a disproportionate impact on developing countries.

In addition, the EU Commission wants to collect between €2.5bn and €4bn per year in corporate taxes from the biggest multinationals.

This source of income would represent 15 percent of the share of the residual profits from large multinational companies that are reallocated to EU member states, under the OECD deal for global taxation reached by 136 countries in October.

Brussels estimates that repaying the borrowed money for the coronavirus recovery fund will take until at least 2058.

But if there is no agreement on new own resources, that would mean member states will have to repay recovery grants with additional national contributions in the next long-term EU budget, EU budget commissioner Johannes Hahn told reporters.

In total, new own resources can add to the EU coffers between €15.8bn and €17.3bn per year for the period 2026-2030 when the revenue flows are expected to be stable, according to commission estimates.

But these revenues are also expected to finance part of the Social Climate Fund, aimed at supporting the poorest households.

As a result, the EU executive is expected to present yet another package of new own resources in 2023.

Traditionally, own resources have been based on customs duties and contributions based on the value-added tax (VAT) collected by member states.

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