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, Common Agricultural 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:

Custom duties, collected at the external borders on economic actors, which go directly into the budget;
MSs’ Value Added Tax (VAT)-based contributions, where a uniform rate of 0.3% is levied on each MS, with some exceptions;
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:

A decrease from 20% to 10% of the percentage that MSs retain as “collection costs” on Custom Duties’ resources;
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;
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:

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.
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.
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.
Modernization of both the Cohesion Policy and the Common Agricultural Policy, to better tackle climate change and environmental issues.
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.

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.
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 9^th 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/