If there is something more contentious than how the EU should spend its money, this must be the question of how it collects it. Even before the big debate on the next EU financial programme for 2014 to 2020 starts, the media has already jumped on juicy proposals that are likely to stir controversy. Chief among these is the idea of – shock, horror – an “EU tax”. Let us lay this one to rest for starters.
An EU tax already exists and has existed since the EU was set up 50 years ago. For EU money does not come out of thin air. It comes through money collected from – you guessed it – taxpayers in EU countries. And that includes you.
So, if anything, the question is not so much whether there are or whether there should be EU taxation – it’s already there in all but name – but, more likely, what form should it take in order to ensure it is as equitable as possible.
Let us take a closer look at this issue. But first a brief background.
Traditionally, the EU collected its revenues through its “own resources”, meaning revenues were automatically assigned to the EU without the involvement or interference of national governments. These consist, in the main, of all Customs duties and levies imposed on goods imported from outside the EU. For instance, when you pay duty on Chinese goods, these taxes already go to the EU. They are merely collected by the national authorities in the country where the goods first enter the EU but are then automatically transferred to the EU budget, save for a portion kept as an administrative fee.
EU revenues also include a small portion of the total VAT receipts collected by each EU country – currently less than one per cent.
There is another, different, type of EU revenue that consists of a contribution paid directly by each country to the EU budget from its own national Budget, based on its gross national income or relative wealth. This is known as the GNI-based resource and it has grown considerably in importance from just about 10 per cent of the total EU budget in 1988 to a staggering 75 per cent today. Correspondingly, the other own resources have shrunk in proportion.
Now looking ahead at the 2014- 2020 budgetary framework, how should the EU raise its money?
Well, first of all the Lisbon Treaty confirmed the principle that the EU should be financed by its own resources. This means more emphasis should be placed on revenue collected directly by the EU than on contributions paid by national governments. It is important to appreciate the difference between the two.
For one thing, own resources are more transparent because taxpayers are more likely to know how much they are paying in taxes to the EU whenever they do so. Secondly, own resources give the EU a degree of financial independence by making it less dependent on national contributions and the political complications that come with them. For it is easy to understand that, since national governments have their own budgetary constraints, they do not fancy sending cheques to Brussels no matter how much they get in return. This, in turn, often transforms EU budget negotiations into ill-tempered bickering over the size of the cheque that each country has to pay.
To add to the complications, over time, some member states, such as Britain, managed to wring back concessions in the form of rebates from the EU budget on account of their “excessive” contributions to the EU budget. Needless to say, all this affects the size of the EU budget and the size of each country’s net contribution or net benefit.
So it seems to me the future EU budget should depend more on resources that are directly collected by the EU than contributions that come from national budgets. This is, after all, in line with the provisions of the treaty.
Moreover, any new form of taxation would be largely revenue-neutral because it would merely substitute national contributions.
So this leaves just one question, namely what form should the new own resources take.
The European Commission came up with a number of suggestions, such as an EU tax on the financial sector, revenue from auctioning under the EU’s greenhouse gas Emissions Trading Scheme, an EU tax on air transport, an EU VAT distinguishable from national VAT, an EU energy tax or an EU corporate income tax. The suggestions certainly merit debate.
For instance, from a Maltese perspective, one can already exclude the tax on air transport for obvious reasons, whereas an EU corporate income tax or an EU tax on the financial sector could also be problematic for us.
But the issue of EU taxation is pretty much a foregone conclusion. For it is self-evident there can be no EU budget without some form of EU taxation.
Put simply, therefore, the question is not “if” but “how”.
A happy New Year to all!
www.simonbusuttil.eu
Dr Busuttil is a Nationalist member of the European Parliament.