Towards a real Federal Budget

JEF Europe,

• Recognising that within the EU, debates on the budget are the prime arena for national egoisms, especially in times of crisis, as the pandemic crisis and the energy crisis have shown;
• Recognising the opportunity to reform the Multiannual Financial Framework (MFF) in order to effectively respond to common European challenges and provide tangible benefits to the European public;
• Highlighting the potential of the EU budget to provide public goods to the European public, to support the goals associated with EU policies, and to use its tools to carry out macroeconomic stabilisation function in times of economic downturns;
• Emphasising the important role fiscal integration has played in political integration projects such as the United States of America;
• Understanding the importance of regional convergence programmes and cohesion policy for economic and social development in Europe;
• Supporting the role EU-funded programmes play in facilitating a European citizenship and sense of belonging through exchange programmes, cultural trainings, improving the quality of education and training, and encouraging intercultural exchange as well as an understanding among Europeans;
• Drawing attention to the mismatch between the size of the EU’s budget and the potential benefit the EU could provide to its citizens through well-financed tasks that can be better carried out on the EU level in line with the principle of subsidiarity;
• Taking note of the apparent preference for smaller, ad hoc budgets rather than combined and permanent funds as part of the EU budget;
• Concerned by the extensive dependence of the EU budget on GNI-based and VAT-based contributions of Member States, which account for the bulk of the EU budget, and their unsustainable and unsteady nature as a source of EU revenue, as it happened for example with the exit of the United Kingdom;
• Noting with concern the contradiction between the importance of programmes that are geared towards youth and social policies for the European economy, and at the same time the budget limitations of the aforementioned programmes;
• Welcoming the European Social Fund Plus (ESF+), which provides an important contribution to employment, social, education and skill-building policies, including the Youth Employment Initiative as well as other important social programmes, and hoping that the level of funding will considerably increase, matching the growing importance of the programme;
• Stressing that some EU financed initiatives such as the Rights, Equality and Citizenship Programme contribute to upholding active citizenship and common European values, such as democracy, freedom, the rule of law, fundamental rights, equality, solidarity, sustainability and peace in all Member States;
• Noting with concern that many citizens are not aware of projects funded by EU funds and their benefits; moreover, noting that many distorted facts on the European budget adversely influence citizens’ opinion about the EU;
• Noting with appreciation that the EU acts in a very cost-effective manner;
• Noting with appreciation the important role played by the European Court of Auditors and the European Anti-Fraud Office (OLAF) to fight financial misuse, corruption and fraud involving EU funds;
• Welcoming the Next Generation EU fund and SURE, as a first example of European bonds, especially the Next Generation EU which, being reimbursable by fiscal resources, represents a first step of a real European fiscal capacity;
• Welcoming the Recovery and Resilience Facility (RRF), as a first attempt for a better coordination of the fiscal policies of member states;
• Welcoming the improvement of collecting own resources such as proceeds from the Carbon Border Adjustment Mechanism or the EU Emissions Trading System (EU ETS);
• Underlining that even with the Next Generation EU recovery and investment programme, the EU’s monetary capacity is minuscule and not sufficient: under the current rules adopted in December 2020, the “own resources ceiling” is only 2% of the Member States’ combined Gross National Income (GNI), also accounting for the Next Generation EU fund;
• Recalling the McDougall report (1977), where it is argued that the establishment of a monetary union would require a Community budget of around 5-7% of GDP in order to absorb economic shocks and provide a minimum degree of income convergence;
• Welcoming the 18 September 2022 Commission’s proposal to the Council of budget protection measures to the conditionality regulation, with the aim ensure the protection of the EU budget and the financial interests of the EU against breaches of the principles of the rule of law in Hungary;

JEF Europe therefore,
1. Calls for a reform of the MFF and the EU budget having these priorities:
i. clarifying responsibilities in budgetary decision-making, ensuring democratic control over the budget by the European Parliament,
ii. increasing the EU budget’s financial independence with the creation of own resources, and,
iii. focusing expenditures on improving the European public goods that benefit everyone;

a) Institutional structure and decision-making:
2. Calls for the MFF to be decided upon through the ordinary legislative procedure as the current unanimous decision in the General Affairs Council grants member states a disproportionate influence over the MFF in comparison to the European Parliament which merely needs to approve it through majority consent;
3. Invites the relevant parties to strengthen the democratic legitimacy of current expenditure and taxation via a reform of the duration of the MFF so as to align it with the five-year mandates of the European Parliament and the European Commission, while taking into account the necessity of the need for longer-term planning of programmes such as Cohesion Policy and the Common Agricultural Policy;
4. Supports a refocus of the number of different EU funds and integrating them into the EU budget to ensure democratic oversight and auditing of expenditure;
5. Calls for the EU budget to be managed by a European Finance Minister, member of the European Commission;
6. Strongly asks for the adoption of the Commission’s proposal that would automatically increase the ceiling of the EU’s MFF, based on the revenues from the new own resources that have been accrued into the EU budget; further asks for an increase of the ceiling up to 5-7% of GDP as proposed in the McDougall report;
7. Asks for the Commission to be able to propose an outright increase for the ‘own resources ceiling’ for the EU budget in order to be able to flexibly increase the resources at its disposal;

b) Allocation of the budget:
8. Asks for the Commission’s budget to adequately reflect the concerns of European youth, especially in areas such as student and apprentice mobility (e.g. Erasmus+), youth unemployment, fighting climate change, and increasing the economic convergence of member states;
9. Stresses the importance of the Cohesion Fund both in assistance to less developed countries of EU, as well as in investing in transportation, environment, energy and digital infrastructures in Europe;
10. Emphasises that an increase in the European budget should finance initiatives for fighting climate change and improving the environment;
11. Emphasises the importance of having a strong social foundation at the core of the European project, and thus emphasising the importance of the European Social Fund+, among other programmes;
12. Calls on the Commission and Member States to develop a strategy to make EU-funded projects more visible and communicate more clearly the benefits of the EU to citizens;

c) Own resources of the EU:
13. Calls for a substantial increase in the size of the EU budget and a diversification of its own resources for tasks that provide, in line with the principle of subsidiarity, an added European value in comparison to any other level of government;
14. Demands an increase in financial resources at the direct disposal of the EU which are not dependent on the political decisions of Member States, as well as the authority for the EU to collect and create new sources of public revenue, subject to democratic legitimation through the Parliament and the Council under the ordinary legislative procedure;
15. Asks for reducing the proportion of GNI-based contributions by Member States to the EU budget which should remain in place as a buffer in case of unpredictable emergencies, in favour of improving considerably its own resources, in particular by:
i. being able to regularly issue European bonds, as a means of financing, just like any other country does, subject to a sustainable debt ceiling to be agreed upon, as well as democratic oversight by the European Parliament;
ii. being able to implement EU taxes that support policy goals and provide European added value when levied at the European level, such as a Financial Transaction Tax to complement the Capital Markets Union, a Common Consolidated Corporate Tax Base to complement the Single Market, or a Carbon price in addition to the Carbon Border Adjustment Mechanism and the EU Emissions Trading System (EU ETS) to encourage usage of renewable energy systems;
16. Further underlines the idea that new taxes should not become an additional burden to individual citizens; rather, the entire tax system must be redesigned to ensure that European, national and local authorities collect revenues for implementing the tasks done best at their respective levels: for instance, there is no need to collect certain taxes for climate action at the national level
when the EU is a more suitable actor to address the climate crisis and needs adequate resources for this effort;
17. Asks for a more coordinated approach between Member States and the EU institutions to close taxation loopholes within the European Union;
18. Strongly ask in conclusion that Member States, EU institutions, and civil society need to collaborate in order to create an economically effective and socially inclusive EU budget, democratically supervised by a real fiscal policy, which would represent a stepping stone in achieving a politically united Europe.