IT IS one of those Brussels hardy annuals. As the prospect looms once again of another round of discussions on the European Union’s budget – this time for the six-year period after 2013 – the commission has launched another revenue reform kite. And, once again, it is most unlikely to get airborne.
Acutely aware that member states will find making their contributions to the EU’s €140 billion budget extremely painful, budget commissioner Janusz Lewandowski has teased ministers with the promise that he will unveil a variety of EU-wide tax proposals in September to ease the burden on national exchequers. “There are various options that would not affect the finance ministries and have a link to European policy like a financial transaction tax, CO2 emission auctions, and an aviation scheme,” Mr Lewandowski told Financial Times Deutschland recently. But the notion of a free lunch for finance ministers in the shape of a politically painless tax is in the realm of pipe dream.
The EU raises what it spends substantially by three means: its “own resources”, customs duties on goods coming into the EU and VAT payments collected for Brussels by national capitals, and through a levy on member states linked to their per capita income. The largest spend by far is on the Common Agriculture Policy, then research, and structural funds, while 4 per cent pays for the EU’s civil service in Brussels. But although the total budget amounts to barely 1 per cent of overall EU economic output, it is the basis of the mother of all rows every six years.
The idea of a transactions tax has been widely touted since the banking crisis, winning some backing from Gordon Brown and Nicolas Sarkozy, and commission officials have suggested it could raise up to €50 billion across the EU. Other measures, such as a tax on airline flights, would raise far less. But member states have never been keen to cede more tax-raising powers to Brussels and the devil in such measures is always in the detail – every tax would impact differently on individual economies. And those like Britain, which plays host to the biggest money market, will be strongly resistant to any EU-wide tax which dips more deeply into the British pool. There is a clear opportunity cost to capitals if potential revenue from as-yet-untaxed sources is forgone from national exchequers in favour of the EU. Not surprisingly the commissioner’s proposals have already been shot down sight unseen by Berlin and London. Dublin will not be unhappy.