The COVID-19 pandemic has had an unprecedented socio-economic impact with the latest forecasts projecting the EU economy will contract by 8.3% this year. The EU and its member states have already adopted exceptional measures in response to the crisis. As the Union works to repair the immediate damage brought on by the coronavirus, while also continuing to create a greener and more digital Europe, the main tool will be the EU’s long-term budget.
A recovery budget
Preparation for the EU’s 2021-2027 budget got underway in May 2018. However, in light of the coronavirus outbreak, in May 2020 the European Commission put forward a new budget proposal to address the impact of the pandemic.
The Commission’s proposal followed a call from Parliament for a largescale recovery package and consists of a €1.1 trillion budget as well as a €750 billion recovery instrument consisting of grants and loans. The budget is subject to negotiations between Parliament and national governments in the Council.
Learn more about the EU recovery plan.
Borrowing for the €750 billion recovery package would be made possible through an amendment of the rules setting the conditions for funding the EU budget.
To enhance the EU’s capacity to borrow on the financial markets and later repay the debt, the Commission proposes increasing the maximum amount of funds the Union can raise from member states.
Parliament is set to adopt its opinion on this proposal after the summer. It will also require unanimity in the Council as well as ratification by all member states.
New revenue sources to finance the recovery
The EU budget’s revenue sources – also known as own resources – have remained unchanged for a number of decades. They include customs duties as well as national contributions based on VAT receipts and on gross national income. Over the years, Parliament has repeatedly called for a reform of the own resources system.
As Europe recovers from the coronavirus outbreak, MEPs are insisting on the introduction of new revenue sources to cover the refinancing costs of the recovery instrument, prevent sharp reductions in EU budget expenditure and ensure the COVID-19 response does not become a burden for future generations.
Parliament is proposing new revenue in the form of environmental and financial levies. They include:
- A common consolidated corporate tax base.
- Digital services taxation.
- A financial transaction tax.
- Income from the emissions trading scheme.
- A contribution based on non-recycled plastic packaging waste.
- A carbon border tax.
Parliament has also repeatedly called for the abolition of all budgetary rebates and corrections, which benefit only some EU countries.
Europeans call for a bigger EU budget
Any decision on the long-term budget will require the consent of MEPs, and Parliament has said the introduction of new revenue sources is an essential prerequisite for an agreement. A new survey commissioned by Parliament and conducted in June 2020 shows that the majority (56%) of Europeans believe the EU should have greater financial means to overcome the impact of Covid-19.
Ahead of a meeting of EU leaders on 17-18 July, MEPs have urged the Council to not water down the Commission’s proposals. Johan Van Overtveldt, chairman of Parliament’s budget committee, responded to a revised proposal by Council President Charles Michel on 13 July. “The positive steps regarding the size and balance of the recovery instrument cannot compensate for backward looking proposals on the long-term budget and on own resources,” he said.
“Essential Union programmes are further cut, I refer to Horizon Europe, Erasmus+, Digital Europe and to migration.” He added that the EU’s long-term objectives have not disappeared with the Covid-19 outbreak and should not be sacrificed.
Also speaking on 13 July, Valérie Hayer, one of Parliament’s lead MEPs on the own resources reform, called for “a legally-binding timetable for establishing new own resources” and added: “We’ve got to make the member states make a clear commitment that they will not backtrack on.”
José Manuel Fernandes, the other lead MEP on own resources reform, also called for a binding decision: “We want the money from the new own resources to suffice to pay the interest rates for the recovery fund. […] The idea is simple: we cannot put the burden on citizens.”
The next steps
Once EU countries have agreed a common position on the budget, they will have a mandate to enter negotiations with Parliament, which will have a final say before the 2021-2027 budget can enter into force. The current multiannual budget runs out on 31 December 2020.