Flawed timing undermines EU tax plan

The timing of the Commission’s document on reforming the way the EU is financed after 2013 could hardly have been worse.

In politics, timing is everything. For José Manuel Barroso, the president of the European Commission, and for Janusz Lewandowski, the European commissioner for financial programming and the budget, the timing could hardly be worse. This week in Strasbourg, they unveiled their discussion document aimed at reforming the way the European Union is financed after 2013.

There are, as there have long been, two main strands to this debate. One is about how big the EU’s budget should be and what the money should go on. The second is about how the money should be raised. These two strands are not always distinct; indeed, they are often closely intertwined. A member state will be readier to contribute to the budget (strand two) if it believes that the money will be spent wisely and well (which means preferably in the territory of the member state concerned) (strand one).

The Commission would prefer that the two strands were disentangled. It would like the EU to have a source (or sources) of funding that gave it a degree of independence from a member state’s calculation of whether it puts more into the communal pot than it receives. This is not a new idea – a lament as to how traditional ‘own resources’ have dwindled as a proportion of EU income is a staple of budget discussion documents since at least the mid-1990s.

But there is greater novelty in the possible sources of revenue that the Commission now identifies – a tax on financial transactions, or a tax on financial activities, taking a share of the proceeds from auctioning of greenhouse-gas emission allowances, a tax on aviation, a new EU value-added tax, an energy levy or a corporate income tax.

Take your pick – and then remember that timing is all.

While Barroso and Lewandowski were debating the budget review with their fellow commissioners, France was in the grip of a general strike. Public transport in Strasbourg was brought to a halt, planes and trains were grounded. The civil unrest is momentarily acute in France (because of protests against plans to raise the pension age), but France is not alone. There have been protests for months in Greece, where the public sector is being cut back. There have been strikes also in Romania and Spain. The United Kingdom is about to embark on a round of cuts to public services, announced yesterday (20 October), that are unlikely to be embraced by trade unions.

It is hard to imagine how the environment could be less propitious for national governments, struggling as they are to maintain electoral support while cutting back public payrolls and services, to endorse a new tax on their citizens, which would go (at least in the eyes of the public) to Brussels and Strasbourg to support the work of European public servants.

The Commission will have worked out fine arguments to justify EU taxes, but it is now operating in a political environment that is not conducive to rational thought. Lewandowski would do better to scale back his ambition and wait for friendlier times.

The better course would be to concentrate instead on reforming the EU’s spending, which means reducing the proportion of the budget spent on the Common Agricultural Policy and concentrating the regional aid money where it is most needed rather than spreading it too thinly to be effective.

It means also tightening up on the administrative expenditure of the EU institutions. The amounts involved are negligible, in the scale of the entire EU budget (which is itself negligible compared to the national budget of a large member state), but any scandal involving the EU’s politicians or officials discredits the entire budget.

Without a reformed budget that is well managed and that achieves results which command general approval, the Commission will never win support for the EU to have its own tax.

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