EU budget review cautious on future spending priorities

The Commission has published its long-delayed budget review which follows a public consultation on the EU budget which began as a mid-term budget review in 2008-09. An earlier version leaked last year, and apparently drafted by Commission President Barroso’s advisers (see Jack Thurston’s post on this), recommended specific targets for the reallocation of EU spending, including a reduction in agricultural spending to around one-third of the budget.

The review published today is a more anodyne document, and it shies away from making specific recommendations on which expenditure areas might see their budgets cut. In this it closely resembles the leaked document on CAP reform put into the public domain earlier this month and which also summarises the conclusions of a public consultation. Indeed, the budget review document is even less prescriptive in that it does not even attempt to sketch out alternative models for the financial perspective period. The document makes the usual rhetorical references to the need for the budget to reflect EU priorities (particularly the 2020 strategy), to concentrate on areas where there is European value added, and to allocate resources on the basis of results. There then follows an extended review of EU expenditure areas presented in a totally neutral fashion. There is no attempt made to suggest that expenditure in an area should be increased or decreased relative to current spending, or relative to other budget items. The section devoted to agricultural spending was clearly written by DG AGRI, and is an exact précis of the leaked CAP reform document. The flavour of the document is summed up in the final paragraph of the agricultural section.

Reform of the CAP could therefore be pursued with different degrees of intensity. It could restrict itself to ironing out some current discrepancies, such as more equity in the distribution of direct payments between Member States and farmers. It could make major overhauls of the policy in order to ensure that it becomes more sustainable, and reshapes the balance between different policy objectives, farmers and Member States, in particular by introducing a more targeted approach to priorities. A more radical reform would go further, moving away from income support and most market measures, and giving priority to environmental and climate change objectives rather than the economic and social dimensions of the CAP.

Indeed, reform of the CAP could imply any of these things, but the budget review paper isn’t going to tell us which.

Newspaper comment has focused on the suggestion that the paper proposes to scrap the VAT-related contribution from Member States and to replace this with an EU VAT tax. Thus the BBC News website highlights “EU proposes new Europe-wide VAT”. This is sloppy journalism. In the section on own resources, the paper simply lists some of the well-known proposals for EU taxes which are not just revenue handed over by national governments, including an EU VAT but also taxes on the financial sector, auction revenue from carbon permits, air transport taxes and so on. These are introduced under the rubric that “The Commission considers that the following non-exclusive list of financing means could be possible candidates for own resources to gradually displace national contributions” and in conclusion the paper says “Each of these financing means has its particular characteristics and presents advantages and disadvantages. In the light of the comments received, the Commission will submit proposals as part of its overall proposals on the next Multiannual Financial Framework.” One might have expected that the public consultation was designed to elicit the comments, but the paper is totally neutral on the favoured option if any. However, the idea that the EU should rebuild its own direct sources of revenue is now back on the table.

The paper strongly disapproves of the stance of Member States in approaching the budget negotiations in the spirit of trying to maximise their net transfer from the EU budget. It is hostile to the idea of corrective mechanisms, in the belief that a more diversified expenditure structure will eliminate the need for such mechanisms. But this fails to recognise the political economy of these negotiations. It would be better to explicitly recognise that the pattern of transfers emerging from the budget negotiations is a legitimate source of concern, and to agree beforehand what that pattern would be. Member States could then negotiate on the substantive budget issues, knowing that whatever agreement was reached would not affect their bottom line.

Concrete commission proposals on the post-2013 multi-annual budget are expected to be published in July of next year, with unanimous member state approval and European parliamentary support needed before they can become law.

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