lecture 1: the eu budget - uni-wuerzburg.de · 2018. 4. 24. · introduced pillar structure of the...

Lecture 1: The EU Budget

24th April 2018

Lecture 1 24th April 2018 1 / 18

The EU budget

Current Legal Basis

EU budget is regulated:EU treaties: The EU Budget is defined in the Treaty of Lisbon andthe Treaty of the EU.

principles governing budget procedureprinciple of funding the budget from own resources.multi-annual financial framework and schedule for the financial year.procedures for budget implementation and control, and confers thenecessary powers.

EU legislation: deals with the implementation of the principles inthe treaties.Agreements between the EU institutions:deals with budgetarydiscipline.


The EU budget

EU Revenue: Historical Background

1952-1969.European Coal and Steel Community (ECSC, 1951, Treaty ofParis):levies on the production of coal and steel, first Communitytax.the Treaty of Rome (EEC, 1957): budget of the European EconomicCommunity would be initially financed from member states’contributions.

1970-1984In 1970, member states agreed that "from 1 January 1975 thebudget of the Communities shall, irrespective of other revenue, befinanced entirely from the Communities’ own resources"From 1971, customs duties, agricultural duties, and sugar andisoglucose levies (’Traditional own resources’ or TOR) went into thebudget.10% of TOR was retained by the member states (to cover cost ofcollection).Member states’ contributions from the value added tax (VAT)-basedresource made for the first time in 1980.


The EU budget


1985-1987.A correction was granted to the United Kingdom

1988-1994Introduction of multiannual financial framework (MFF)GNP-based own resources were implemented in 1988. uniform ratein proportion to the GNP of each member state, as a measure of acountry’s prosperity.member states’ VAT base was capped at a percentage (55%) ofeach national GNP.Maastrich Treaty 1992: EU formally established. Introduced pillarstructure of the European Union. Set path for monetary integration.

1995-1999. There was also a progressive broadening of thecapping of the VAT base (50% in 1999 for all member states)


The EU budget


2000-2006.GNP was replaced by the concept of gross national income (GNI)Austria, Germany, the Netherlands and Sweden paid less of the UKrebate2001, the percentage of TOR that member states retain was set to25%.Introduction of Euro (2002). Major enlargement (2004).

2007-2020.uniform rate of call of the VAT-based resource was reduced to0.30% (Germany, the Netherlands and Sweden at 0.15%).Treaty of Lisbon (2007): reforms, more countries adopted Euro.


The EU budget


Figure: The composition of EU revenue, %


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EU revenue: EU revenue 2000-2015 (million EUR)


The EU budget

EU Revenue: the UK Correction

UK correction mechanism was introduced in 1985 to reduce thenet contributionApproximately, the rebate amounts to 66% of the differencebetween its contribution and what it receives back from thebudget. The calculation is based on its GNI and VAT contributions(TOR is not included)


The EU budget


MillionsVAT-based own resource 2.932,9GNI-based own resource 14.524,6UK correction -6083.64Total expenditure 6.984,7

Source: European Commission


The EU budget


The cost of the UK correction is borne by the other 27 MemberStates.The distribution of the financing is first calculated on the basis ofeach country’s share in total EU GNI.However, Germany, the Netherlands, Austria and Sweden onlypay 25% of the amounts calculated on the basis of their respectiveGNI. The rest is redistributed across the remaining Member States


The EU budget

EU Revenue: the UK Correction Financing


The EU budget

EU Expenditure

The measures or projects financed by the EU budget reflect theagreed priorities of Member States and are summarized in broadcategories of expenditure (called headings)The Financial Framework (FF) is a medium-term planning of EUexpenditure for a 7-yearIn the FF 2014-1020 major Community spending areas are ratedaccording to the following categories of expenditure.


The EU budget

EU Expenditure

1 Smart and Inclusive Growth. It includes two sections thatinterconnected:

Competitiveness for growth and jobs - includes spending onresearch and innovation, education and training, EU networks,Social policy and the internal market.Economic, social and territorial cohesion- encompassesexpenditure to promote convergence between the least developedMember States and regions, to complement the EU strategy forsustainable development outside the less prosperous regions andto support the regions border cooperation.

2 Sustainable Growth: Natural Resources. It includes spending onthe Common Agricultural Policy, the Common Fisheries Policy,rural development and environmental protection. For the period2014-2020, it accounts for about 39% of the EU annual budget.


The EU budget

EU Expenditure

1 Security and Citizenship. The fight against terrorism, organizedcrime and illegal immigration requires information sharing andcoordinated action by Member States. About 1.5% annuallyprovided in the EU budget.

2 Global Europe. It covers all external action includingpre-accession funds. The EU budget also act beyond our borderswith emergency aid after natural disasters or long-term help.

3 Administration. It accounts for around 6 % of expenditure. Thiscovers the staff and building costs of all EU institutions (EuropeanParliament, Council of the European Union, EuropeanCommission, Court of Justice and European Court of Auditors).

4 Compensations. It is temporary and recorded some compensatoryamounts in connection with the recent enlargement of the Union.


The EU budget

EU Expenditure:Multi-annual Financial Frameworkadjusted for 2017

2017 Total 2014-20201. Smart and Inclusive Growth 65277 4545542. Sustainable Growth: Natural Resources 53 448 372 9253. Security and citizenship 2 289 15 6734. Global Europe 8 375 58 7045. Administration 8 807 61 6296. Compensations 0 27TOTAL COMMITMENT APPROPRIATIONS 138 196 963 512as a percentage of GNI 1.01% 1.00%TOTAL PAYMENT APPROPRIATIONS 126 897 909 566as a percentage of GNI 0.92% 0.95%Margin available 0.31% 0.28%Own Resources Ceiling as a percentage of GNI 1.23% 1.23%


The EU budget

EU Expenditure: The EU Budget 2016

Draft Adopted % change1a. Comp. growth and jobs 18618.43 19010.00 +2.101b. cohesion 50821.65 50831.20 +0.022. S. G.: Natural Resource 62484.20 42867.62 -31.393. Security and citizenship 2669.97 4052.00 +51.764.Global Europe 8881.73 9167.00 +3.215. Administration 8908.69 8935.20 +0.36. Other 524.61 524.60 -0.00Total 153529.46 155004.20 +0.96In % GNI (EU-27) 1.1%


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The net balances problem:Operating BudgetaryBalance, 2009-2014


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The net balances problem

Figure: Operating Budgetary Balance, 2015


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EU Revenue: Reforming the EU Budget Financing

Proponents of reform: to ensure more transparent and fairerburden-sharingProponents of current system: GNI-based own resources are areliable, transparent, and well-administered source of funding(Advisory Board to the Federal Ministry of Finance)Possibility of using new own resources to finance the EU budget.2 questions:

Is the EU currently able to levy taxes?Would this system be more transparent?


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If no EU taxes: reform the distribution of the financial burden.Contributions. Linking contributions to economic strength (GNI) is asimpleExpenditure. Using the net balance to assess how individualsmembers benefit from EU is not ideal but simple. Expenditure onagricultural subsidies takes up 40% of the EU budget. Need toreconsider what the EU should be financing.


The EU budget


Figure: Financing share to GNI share ratio, 2013

0

0.5

1

1.5

2

2.5


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If levying EU own taxes was a possibility:A financial transaction tax (FTT) or a financial activity tax (FAT)The auctioning of European CO2 certificatesduty on energyaviation tax


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Brexit and the EU Budget

On June 23rd, 2016, the United Kingdom held a referendum onwhether it should remain in the European Union or leave.Leave won by 52% to 48%. The referendum turnout was 71.8%.Prime minister Theresa May on the 29th of March invoked Article50 of the Lisbon Treaty.Reactions included that the UK must settle its withdrawal chargebefore negotiations start: the 60 billion euro bill.


The EU budget

Brexit and the EU Budget

It is scheduled to depart at 11pm UK time on Friday 29 March,2019.The UK and EU have provisionally agreed on the three "divorce"issues:

Divorce bill: Around £35-£39 billion .Northern Ireland border.Rights of UK citizens in the EU and EU citizens in the UK.

Agreed on a transition period from 29 March, 2019, to 31December, 2020.


The EU budget

Brexit: Effects on EU Budget

net UK contribution to the EU budget in 2014 was around 7billions euro ( 4 % of the total EU budget)UK’s contributions are linked to the Financial Framework for2014-2020UK could contribute to the EU budget in order to remain in thesingle market


The EU budget


Figure: Annual net financial contribution to the EU, 2015

% GDP € per capita

Iceland -0.05% -25

Switzerland 0.02 12

Liechtenstein 0.03 40

Norway 0.16 115

UK 0.25 79

Italy 0.29 79

France 0.32 100

Netherlands 0.36 140

Germany 0.39 131

Source: Calculations prepared by Dr Zsolt Darvas, based on European Commission data


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What are the effects of an exit on other members’ contributions?


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Future negotiations will be affected given that the power shareswill change. UK’s exit will impact the EU budget as ”..., the weightof the economically liberal bloc in the EU (currently the UK, theNetherlands, Sweden, Denmark, and Estonia) would decline. EUmore protectionist.Fall in UK’s GDP growth is forecastedEU-27 (without the UK): expected reduction in real GDP per capitawould fall between 0.1 percent and around 0.4 percent


The EU budget

The 60 billion euro Brexit bill

Before negotiation on trade, the UK has to pay the exit bill: 60billion euros29th April 2017: EU leaders have unanimously agreed toughnegotiating guidelines for Brexitwhere does this number come from? 3 sources

legally binding budget commitments that will be paid after Britainleavespension promises to EU officialscontingent liabilities-such as bailout loans to Ireland- that wouldonly require payments in certain circumstances.

This number is highly controversial


The EU budget


Unpaid commitments: biggest portion of the Brexit charge. Basedon its typical contribution rate, around 29-36 billion euros .Pension promises: Britain could agree to cover its share of annualexpenditure, around 120 million euros this year, rising to 218million by 2045.contingent liabilities:EU will expect the UK to pay its share of legalobligationsAssets, rebates, inflows: UK will expect part of its expenditure.Around 9 billion euros. And its rebate, 5 billion euros in 2019.


The EU budget



lecture 1: the eu budget - uni-wuerzburg.de · 2018. 4. 24. · introduced pillar structure of the...

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