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The EU Budget

The Multiannual Financial Framework

The
European Union (EU) budget is implemented through a 7-year expenditure programme
known as the Multiannual Financial Framework (MFF), consisting of several
“headings”, corresponding to the categories of expenditure. Each heading has a
financial ceiling.

The
current programming period concerns the years 2014-2020, while the next one
will cover the years 2021-2027.

The
EU budget covers all type of expenditures, from funds for the Member States
(MSs) (Cohesion Policy, Horizon2020, Erasmus+ …) to administrative expenses.

The current 2014-2020 programming period is organized as follows:

Resources

The
EU budget is financed through three different resources, notably:

  1. Custom
    duties, collected at the external borders on economic actors, which go directly
    into the budget;
  2. MSs’
    Value Added Tax (VAT)-based contributions, where a uniform rate of 0.3% is
    levied on each MS, with some exceptions;
  3. MSs’
    Gross National Income (GNI)-based contributions (own resources), to cover the
    remaining part of the budget.

Issues for the 2021-2027 budget

The
Commission’s proposals

Resources:
The Commission has deeply focused the discussions on budget on the issue of
resources. In particular, the main proposal aims to modernize the system of own
resources by:

  1. A
    decrease from 20% to 10% of the percentage that MSs retain as “collection
    costs” on Custom Duties’ resources;
  2. The
    introduction of a new basket of own resources, notably a 3% rate applied to the
    new Common Consolidated Corporate Tax Base [a common set of legislations to tax
    companies’ profits in the EU]; a 20% share of the auctioning revenue of the
    European Emissions Trading System [allowances auctioned by MSs and purchased by
    companies to cover their greenhouse gas emissions]; national contribution based
    on the amount of non-recycled plastic packaging waste in each MS;
  3. The
    elimination of all rebates (but with a 5-year transition phase to avoid sudden
    increase in contribution).

According
to the impact assessment issued by the Commission, this new system of own
resources could impact the EU budget with roughly €22 billion per year.

Rule
of law: In order to foster the EU strategy of safeguarding fundamental
and human rights, the Commission also proposed to link the payouts of the
budget and the compliance of MSs with the rule of law[1].

Allocation:
The Commission detailed a plan to reshape priorities in allocation of funds for
the next budget, related to the new challenges the EU has to face in the
future. Priorities in the Commission’s view are declined as follows:

  1. Research
    and Development (R&D): The Commission’s main proposal is to increase
    research and innovation funds to €114.8 billion. The 2021-2027 budget should
    allocate €97.6 billion in the “Horizon Europe” programme, to address
    simultaneously open science, global challenges and open innovation. Also, the
    Commission proposes to allocate €15.2 billion in the InvestEU programme, with a
    dedicated investment window to R&D. Boosting InvestEU is estimated to mobilise
    more than €650 billion of additional investments, both public and private
    financing.
  2. Digital
    transition: €9.2 billion shall be allocated in supporting a new Digital Europe programme,
    to shape and support digitalization across MSs. Issues to be addressed should regard
    especially the upscaling of digital innovation hubs (to better exploit AI),
    protection against cyberattacks and training for students and technology
    experts.
  3. Macroeconomic
    stability, by the creation of a Reform Support Programme (RSP) and a European Investment
    Stabilisation Function (EISF). The RSP shall have a budget of €25 billion and shall
    comprise a Reform Delivery Tool – to provide financial support to MSs for key
    structural reforms in the framework of the European Semester – and a
    Convergence Facility, to support MS seeking to adopt the euro. Alongside with
    it, the EISF shall fund loans under an overall budget of €30 billion, to
    guarantee extra financial support to MSs.
  4. Modernization
    of both the Cohesion Policy and the Common Agricultural Policy, to better
    tackle climate change and environmental issues.
  5. Migration
    and border management, by the creation of a new specific Integrated Border
    Management Fund as well as a new Asylum and Migration Fund. One of the
    Commission’s priority in the field of migration is the creation of a standing
    corps of around 10.000 border guards aimed to provide support to the existing
    Frontex[2].

The
Parliament’s proposals

Working
in synergy with the Commission, the European Parliament (EP) backed most of the
proposals mentioned above. Given its mostly political asset, the EP declined
also some of its own specific priorities for the next EU budget, to complete
the policy debate.

  1. The
    European Defence Fund. Based on the position of the EP and 27 MSs (without the
    UK), took in 2017 within the Rome Declaration, the Commission proposed a
    regulation for the creation of a specific European fund to enhance
    competitiveness and innovation of the defense technological and industrial base
    of the EU. The budget allocation for the fund in the 2021-2027 MFF should be of
    €13 billion, as proposed by the EP.
  2. To
    strengthen conditionality in the use of European Structural and Investment
    (ESI) Funds. The EP has called for 1) a simplification – in the next
    programming period – of the administrative procedure that beneficiaries of ESI
    funds must meet in order to apply for the funds; 2) a decrease in the number of
    conditionalities and scope required by each fund; as consultations with MSs and
    stakeholders shown, too many conditionalities might compromise the
    proportionality principle; 3) improved enforcement and monitoring on the use of
    ESI funds, (studies shown they are the main subject of fraudulent actions).

Timeline for discussion

Given
the proposals of both the Commission and the EP, the decision then fall to the
Council, acting by unanimity, with the approval of the EP. The deadline is
represented by both the European Parliament elections on May 26th and the
Council summit in Sibiu (Romania) on May 9th 2019. As stressed out
by the Commission itself, time is of the essence, because “negotiations on the
current long-term EU budget took too long. As a result, key financial
programmes were delayed and projects with real potential to spur the economic
recovery postponed”.

Federico
Dante De Falco

For
further information:

European
Commission, https://ec.europa.eu/commission/publications/factsheets-long-term-budget-proposals_en

European
Commission, https://publications.europa.eu/en/publication-detail/-/publication/777730af-80c6-11e8-ac6a-01aa75ed71a1


[1] For
an in-depth analysis of the proposal: https://www.eu-logos.org/2019/02/27/linking-eu-funds-to-compliance-with-the-rule-of-law-an-analysis-of-the-proposal/.

[2] For
further information: https://www.eu-logos.org/2019/02/25/euelections2019-the-new-european-border-and-coast-guard-agency/

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