Taxing Times for the EU Budget Commissioner

by Shane Fitzgerald

The EU Budget Commissioner, Janusz Lewandowski, yesterday disturbed a placid political August by outlining proposals he will bring forward at the end of September to revamp the way the EU funds itself. Controversy was already anticipated over planned attempts to reform the Common Agricultural Policy and to tinker with the delicate system of national quotas and rebates which determines each country’s share of EU costs. But Lewandowski seems determined to plough ahead with an even more flammable idea, namely that the EU should be permitted to raise its own resources through direct taxation.
In an interview with the Financial Times Deutschland (Monday 9 August), the Polish Commissioner suggested that the introduction of ‘eurotaxes’ on things like aviation, finance and carbon emissions could be an idea whose time has come, not least because it would allow stretched exchequers to reduce the amount that they have to pay into EU coffers directly. The EU has traditionally relied on a mix of such direct transfers from member states and so-called ‘own resources’ (mainly duties on goods imported into the single market) to finance itself. But in recent years ‘own resources’ have been rapidly dwindling as a percentage of the overall budget, which is why Lewandowski and others are keen to give them a radical boost.

The Commissioner was apparently encouraged to think big by the prominent recent discourse on the idea of an international financial transactions levy, which he says has changed the nature of the debate on transnational taxes. Lewandowski is right to note that in the wake of the financial crisis governments and citizens are more open to the idea of certain transnational taxes. The UK, France and Germany are already trying to coordinate new levies on the banking industry but it is not at all clear that they will agree to cede control over the revenues that these taxes generate to the EU or to anyone else. Indeed, the Commissioner’s comments were quickly rebuffed by representatives of the EU’s ‘Big Three’.

Lord Sassoon, the British Commercial Secretary, said the British government “is opposed to direct taxes financing the EU budget. The UK believes that taxation is a matter for member states to determine at a national level and would have a veto over any plans for such taxes.” Meanwhile, a spokesperson for the Finance Ministry in Berlin pointed out that its government’s coalition agreement expressly rejected the idea of any EU taxes, a position on which there had been “no change”. Perhaps most surprisingly, France’s Europe Minister, Pierre Lellouche, also came out very strongly against the idea, saying that his government judged the idea to be “perfectly ill-timed” and that “the idea of a European tax raises fundamental political questions and would constitute a major transfer of sovereignty”.

Opposition from Paris, London and Berlin would seem to leave these proposals dead in the water for the moment. But supporters of certain EU-wide taxes have good arguments and strong advocates. It makes sense that proposed new taxes on aviation fuel, financial transactions and carbon dioxide be implemented transnationally, as this would reduce the potential for arbitrage between states. It also makes sense for the EU to have a solid base of ‘own resources’ with which to implement its policies, as this would diminish the regular bouts of fighting between and among the European institutions and member states over the organisation’s budget. It would also, if done correctly, increase the authority and accountability of MEPs and Commissioners. During a speech in November 2009, the President of the European Council, Herman Van Rompuy, said that “the possibility of financial levies at European level needs to be seriously reviewed and for the first time ever, the big countries in the Union are open to this.” The strong statements this week by Britain, France and Germany cast a doubt over the second part of this assertion, but at such a precarious moment in the evolution of the EU it is difficult to argue that the case for financial and other Europe-wide levies does not at least deserve another look.

This article was first published by the Institute of International and European Affairs. Access the original here.