New funding sources for EU budget must be stable, fair and business-friendly

(Source: European Economic and Social Committee)

The European Economic and Social Committee is calling on the European Commission to carry out more targeted impact assessments of its proposals for new EU budget funding sources to repay NextGenerationEU debt. The EESC generally agrees with the proposed EU “own resources” revenues for the budget. However, they need to be stable and fair – and should not burden households or businesses.

In an opinion adopted at its May plenary session, the EESC also calls on the Commission to ensure its proposals can weather economic shocks and cautions they could be derailed by the consequences of higher energy costs due to the war in Ukraine.

Currently, the EU budget is financed through customs duties, value-added tax (VAT) and Member State contributions based on gross national income (GNI), as well as payments tied to non-recycled plastic packaging waste and fines. Going forward, the Commission envisions three new categories of revenue sources related to a proposed Carbon Border Adjustment Mechanism (CBAM), a revised EU Emissions Trading System (ETS) and the planned taxation of multinational companies linked to a recent landmark deal of the Organisation for Economic Co-operation and Development (OECD). 

The design of the new own resources should not jeopardise the budgets of other EU programmes and instruments, and avoid increasing the GNI-based resource contributions, said the opinion’s rapporteur Philip Von Brockdorff. It should also be based on achieving equity and fairness, efficiency, transparency, simplicity and stability with a focus on maintaining competitiveness while providing solidarity to affected citizens where necessary.

Assessments and resilient revenue sources for stability

The EESC considers it paramount to support households and businesses, where necessary. Therefore, it strongly recommends carrying out more targeted impact assessments, both on a country-by-country level and for specific industries, to determine any negative effects the proposals might have on them.

The assessments would also look into whether the proposed new sources of revenue, especially the two taxing CO2 emissions, can withstand economic shocks, so as to ensure future EU budgets remain stable.

Ensure fairness for households, businesses and contributions from EU countries

Furthermore, the EESC warns that tax reform and/or compensatory mechanisms might be needed at the national level to offset any additional tax burdens on households and businesses. The EESC also welcomes a temporary measure to adjust own resource contributions, with upper and lower boundaries, to maintain fairness by ensuring that some EU countries do not contribute disproportionally to the EU budget relative to the size of their economy.

Taxation in tandem with partners for business-friendly measures

The EESC considers residual profits from multinational enterprises an appropriate base for EU own resources. However, it cautions that implementing the new OECD corporate tax deal rules before others could hurt EU companies.

The EESC applauds OECD efforts to ensure that global corporates are taxed where economic activity and value creation occur but warns that EU businesses should not be placed at a competitive disadvantage by implementing the new rules before major trading partners, said co-rapporteur Antonio García del Riego, noting these should be applied in line with harmonised definitions and standards.

The EESC highlights that the final implementation details of the OECD agreement are still under discussion and consequently considers it premature to count these new resources as permanent EU resources, especially when EU Member States could be paying a proportion of tax revenues to third jurisdictions, he added.

Other opinion highlights

• The proposed new own resources need to support EU policy goals, particularly with regard to the single market, competitiveness and sustainable growth, whilst resulting in welfare improvements for EU citizens.

• The financial burden of the proposals must be fairly distributed. Fairness in the way the proposals are implemented across the EU is also crucial.  

• While bold, the proposed shift of ETS revenues from essentially a national resource to an own resource does not incentivise a sharp reduction in pollution by making sure that all polluters pay. The EESC reiterates that the “polluter pays” principle must apply in all countries.

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