Dr Gabriele Cipriani - Financing the Eu Budget: Moving Forward or Backwards?

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F INANCING THE EU B UDGET

F INANCING THE EU B UDGET

M OVING FORWARD OR BACKWARDS ?

G ABRIELE C IPRIANI

Published by Rowman & Littlefield International, Ltd.

Unit A, Whitacre Mews, 26-34 Stannary Street, London SE11 4AB

www.rowmaninternational.com

Rowman & Littlefield International, Ltd. is an affiliate of Rowman & Littlefield

4501 Forbes Boulevard, Suite 200, Lanham, Maryland 20706, USA

With additional offices in Boulder, New York, Toronto (Canada), and Plymouth (UK)

www.rowman.com

Copyright 2014 Centre for European Policy Studies

Centre for European Policy Studies

Place du Congrs 1, B-1000 Brussels

Tel: (32.2) 229.39.11 Fax: (32.2) 219.41.51

E-mail: info@ceps.eu

Website: http://www.ceps.eu

The right of Gabriele Cipriani to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. The opinions expressed by the author in this publication in no way commit the European Court of Auditors to which he belongs.

Cover drawing: Luigi Ripari (2010)

All rights reserved . No part of this book may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval systems, without written permission from the publisher, except by a reviewer who may quote passages in a review.

British Library Cataloguing in Publication Data

A catalogue record for this book is available from the British Library

ISBN 978-1-78348-330-3

Library of Congress Cataloging-in-Publication Data Available

The paper used in this publication meets the minimum requirements of American National Standard for Information SciencesPermanence of Paper for Printed Library Materials, ANSI/NISO Z39.48-1992.

Printed in the United States of America

In memory of Massimo Vari,
with respect, gratitude and affection.

N OTE TO THE READER ON THE BOOK S STRUCTURE

This study contains three chapters. Chapter 1 presents an historical overview of the EU revenue system. It examines the context for setting revenue arrangements and the concept of EU own resources. This chapter further illustrates the implications of budgetary balances calculations (i.e. the difference between member states contributions to the EU budget and payments received from it), conceptual weaknesses and an alternative way to assess economic benefits induced by EU expenditure. The burden-sharing for financing the EU budget is examined in detail in the last section, accompanied by figures and tables with reference to member states and on a per capita basis.

Chapter 2 provides an assessment of the current system against simplicity, transparency, equity and democratic accountability. It examines the drawbacks of the proposals for reform put forward by the European Commission in 2011. It further discusses the potential for increasing public revenue represented by the significant amount of uncollected value-added tax (VAT). Finally, it sketches two possible options for reforming the EU revenue system, one member state-centred and the other through a VAT-based resource levied directly on citizens.

The final chapter examines issues connected to EU revenue, such as the need to ensure its legitimacy through a demonstration of the added value of EU expenditure and a better rationale for setting the overall resources for the EU budget, on the basis of an assessment of the costs involved for achieving the intended results by each of the programmes.

C ONTENTS

List of Figures

Figure 1.	The composition of EU revenue Selected years (Outturn, %)
Figure 2.	Allocation of EU expenditure and operating budgetary balances selected member states (outturn 2007-2013, million)
Figure 3.	The amounts of the UK correction over 1984-2011 ( billion and % of GNI)
Figure 4.	Contribution to EU budget as a % of GNI and per capita (nominal value, ) - Deviation from EU-27 average (outturn 2007-2013)
Figure 5.	Operating budgetary balances as a % of GNI Net-payer member states (outturn 2007-2013)
Figure 6.	Breakdown of revenues according to GDP in PPS (2011) in member states participating in enhanced cooperation on FTT
Figure 7.	Development of average standard VAT rate (EU-28, 2000-2014)
Figure 8.	Making visible the VAT accruing to the EU budget

List of Tables

Table 1.	Share of the EEC budget financing (%)
Table 2.	Comparison of net balances calculated according to operating budgetary balances and induced production demand (2000-2002)
Table 3.	Impact of correction mechanisms granted to Germany, the Netherlands, Austria and Sweden (draft budget 2012, million)
Table 4.	Specific revenue arrangements applicable to some member states (2014-2020)
Table 5.	Funding of the EU budget through national contributions (VAT and GNI-based resources) in comparison to GNI (2014 budget, EU-28, )
Table 6.	Funding of the EU budget through national contributions (VAT and GNI-based resources) in comparison to EU GNI (outturn 2007-2013, EU-27, )
Table 7.	Average GNI and national contributions (VAT and GNI-based resources) per capita (PPS, outturn 2007-2013, ) Selected member states
Table 8.	Estimated evolution of the structure of EU financing (2012-2020)
Table 9.	An EU VAT rate
Table 10.	MFF 2014-2020 - Main spending programmes ( million, Commitment appropriations, 2011 prices)

P REFACE

T he on-going review of the EU revenue system by a High-Level Group on Own Resources, formed in February 2014 under the chairmanship of the former Italian Prime Minister and European Commissioner Mario Monti, is the last in a series of efforts at reform. This system, which is mostly based on member states financial transfers, seems unalterable. Yet, it guarantees the resources needed to fund the around 140 billion spent each year by the EU budget. Why then change it?

The need for reform is implicit in the four criteria set for the review: simplicity, transparency, equity and democratic accountability. The current system does not score well against any of these criteria. In particular, while the EU budget is financed from the cashbox of overall national taxation, this is not made visible to taxpayers. Citizens are therefore left in the dark. Out of sight, out of mind.

The EU revenue system is an element of the legitimacy of the Union's action. In particular, the principles of transparency and taxation by consent would require making it possible for citizens to understand how the EU budget is financed and to ascertain what individual contributions they are making to fund it.

Funding the EU budget with a visible resource, which would represent a major political decision with no practical possible reversal, is the elephant in the room faced by the review. On the one hand, it would offer a way to bring Europe closer to its citizens, acknowledging the status of the EU as a union of member states and their nationals. On the other hand, it would imply making citizens directly liable for funding the EU budget, while EU revenue arrangements have traditionally been regarded as the game preserves of national chancelleries.

Furthermore, raising awareness among EU citizens on their contribution to the EU budget will most likely stir up a volley of questions: What is the purpose of the EU budget? Who profits from it? On whom does the burden fall? Who is managing EU expenditure and who is ultimately accountable for the results? Thus, the visibility of EU revenue could prompt an unprecedented debate about the EU budget, and ultimately about the European integration process itself.

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