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Brussels raises EU's long-term budget to plug Brexit gap

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Brussels raises EU's long-term budget to plug Brexit gap

Jean-Claude Juncker - Photo EC

(BRUSSELS) - The EU Commission set out proposals for a 'pragmatic, modern, long-term budget for the 2021-2027 period' Wednesday, raising funding for security and defence and acknowledging the budget gap left by Brexit.

The proposals respond to the 'new reality' through cuts to expenditure, as well as fresh resources in equal measure. Funding for the EU's new and main priorities will be maintained or reinforced, says the EU executive, which means cuts in other areas. With the stakes so high, it is time to act responsibly. Today's budget proposal is therefore both focused and realistic.

"The new budget is an opportunity to shape our future as a new, ambitious Union of 27 bound together by solidarity," said European Commission President Jean-Claude Juncker: "With today's proposal we have put forward a pragmatic plan for how to do more with less. The economic wind in our sails gives us some breathing space but does not shelter us from having to make savings in some areas. We will ensure sound financial management through the first ever rule of law mechanism. This is what it means to act responsibly with our taxpayers' money."

 "This budget proposal is truly about EU added value," said Budget Commissioner Commissioner Guenther H. Oettinger: "We invest even more in areas where one single Member State cannot act alone or where it is more efficient to act together - be it research, migration, border control or defence. And we continue to finance traditional - but modernised - policies, such as Common Agricultural Policy and Cohesion Policy, because we all benefit from the high standard of our agricultural products and regions catching up economically."

Overall, the Commission proposes a long-term budget of €1.135 billion in commitments (expressed in 2018 prices) over the period from 2021 to 2027, equivalent to 1.11% of the EU27's gross national income (GNI). This level of commitments translates into €1.105 billion (or 1.08% of GNI) in payments (in 2018 prices). This includes the integration into the EU budget of the European Development Fund – the EU's main tool for financing development cooperation with countries in Africa, the Caribbean and Pacific and which to date is an intergovernmental agreement. Taking into account inflation, this is comparable to the size of the current 2014-2020 budget (including the European Development Fund).

 

To fund 'new and pressing priorities', current levels of funding will need to be increased, says the Commission. The budget of the education funding programme Erasmus+ and the European Solidarity Corps will be doubled.

At the same time, the EU executive is proposing that funding for the Common Agricultural Policy and Cohesion Policy is reduced, by around 5%, to reflect the new reality of a Union at 27. Cohesion Policy will have an increasingly important role to play in supporting structural reform and in the long-term integration of migrants.

The Commission stresses that the EU budget is 'modest in comparison with the size of the European economy and national budgets'. It believes the EU can provide 'real European added value' in areas such as cutting-edge research projects that bring together the best researchers from across Europe, large infrastructures or projects to succeed the digital transformation or equipping the Union with tools to protect and defend its citizens.

The Commission is promising to further cut red tape for beneficiaries by making rules more coherent on the basis of a single rulebook. And it also means setting clearer objectives and focusing more on performance. This will make it easier to monitor and measure results – and to make changes when necessary.

The structure of the budget will also be clearer and more closely aligned with EU priorities. The Commission proposes to reduce the number of programmes by more than a third (from 58 currently to 37 in the future), for example by bringing fragmented funding sources together into new integrated programmes and radically streamlining the use of financial instruments, including through the InvestEU Fund.

A major innovation in the proposed budget is the strengthened link between EU funding and the rule of law. Respect for the rule of law is an essential precondition for sound financial management and effective EU funding. The Commission is proposing a new mechanism to protect the EU budget from financial risks linked to generalised deficiencies regarding the rule of law in the Member States. The new proposed tools would allow the Union to suspend, reduce or restrict access to EU funding in a manner proportionate to the nature, gravity and scope of the rule of law deficiencies. Such a decision would be proposed by the Commission and adopted by the Council through reverse qualified majority voting.

In the new Multiannual Financial Framework, two new instruments are proposed:

  • A new Reform Support Programme which – with an overall budget of €25 billion – will offer financial and technical support to all Member States for the pursuit of priority reforms, especially in the context of the European Semester. In addition, a Convergence Facility will provide dedicated support to non-euro area Member States on their way to joining the common currency.
  • A European Investment Stabilisation Function which will help to maintain investment levels in the event of large asymmetric shocks. It will start in the form of back-to-back loans under the EU budget of up to €30 billion, coupled with financial assistance to Member States to cover the costs of the interest. The loans will give extra financial support at a time when public finances become stretched and priority investments must be maintained.

On sources of finance, the Commission proposes funding through fresh money (roughly 80%), redeployments and savings (roughly 20%).

It is also proposing to modernise and simplify the current overall financing –"Own Resources" – system and diversify the budget's sources of revenue.

It proposes to simplify the current Value Added Tax (VAT) based Own Resource and to introduce a basket of new Own Resources that is linked to our political priorities.

The proposed basket of new Own Resources includes:

  • 20% of the revenues from the Emissions Trading System;
  • A 3% call rate applied to the new Common Consolidated Corporate Tax Base (to be phased in once the necessary legislation has been adopted);
  • A national contribution calculated on the amount of non-recycled plastic packaging waste in each Member State (0.80 € per kilo).

These new Own Resources will represent about 12% of the total EU budget and could contribute up to €22 billion per year to funding the new priorities.

Rebates

  • The United Kingdom leaving the EU provides an opportunity to address the complicated system of rebates and even "rebates on rebates". The Commission proposes to eliminate all rebates and to reduce from 20% to 10% the amount Member States keep when collecting customs revenues (being one of the "Own Resources") for the EU budget. Both measures will make the EU budget simpler and fairer.
  • In order to avoid any sudden and drastic increases in contributions for some Member States, the Commission proposes to phase out the current rebates over a period of five years.

The Commission is now set to present, in the coming weeks, detailed proposals for the future sector-specific financial programmes.

The decision on the future long-term EU budget will then fall to the Council, acting by unanimity, with the consent of the European Parliament.

Commission proposals for long-term 
EU Budget (2021-2027) - background guide

Key information related to the EU budget for the future - Multiannual Financial Framework (2021-2027)


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