EU leaders to clash over bloc’s next 7-year budget, seek new revenue sources

BRUSSELS – European Union leaders will clash over the bloc’s budget on June 19 as a first proposal on what the EU should pay for in 2028-2034 – and where it should get the money from – drew sharp criticism from both the budget’s net contributors and its beneficiaries.

The EU budget is how the EU finances all its policies – from supporting farmers to equalising standards of living across the 27-nation bloc, to new technology development and student exchange programmes. According to the European Commission’s proposal, the 2028-2034 budget should be €2 trillion (S$2.95 trillion).

Richer EU countries pay more into the budget than they get out of it, while poorer ones receive more than they pay. Every seven years, the two groups fight bitterly to reach a unanimous deal needed for the budget to pass.

The first compromise proposal prepared by the Cypriot EU presidency last week reduced the Commission proposal by 2 per cent, which was not enough for some and far too much for others.

It also allotted more money within the budget for farmers and for cohesion policies at the expense of support for research and innovation and other areas, which angered countries trying to compete with the industries of China and the United States.

The Netherlands, a net contributor to the budget, was unhappy with the first compromise because it focused too much on agriculture and cohesion – seen as traditional spending – rather than the new challenges of defence and modernisation.

“The proposal currently on the table is really not good enough for the Netherlands,” Dutch Prime Minister Rob Jetten said on June 18.

Spain, which is a small but still net beneficiary, had a different view, arguing the budget was too small and spending on farmers and cohesion should be adjusted upwards for inflation.

“The proposal... is even more inadequate than the one initially proposed by the European Commission, and we therefore certainly do not agree with it at all,” Spanish Prime Minister Pedro Sanchez said.

Legally, EU governments need to agree on the 2028-2034 budget by the end of 2027.

But because of elections in France, Italy, Poland, Spain, Greece, Estonia, Finland and Slovakia in 2027, a deal should be struck by the end of 2026, so as not to become hostage to all the election campaigns.

To help reduce national contributions of the net payers while keeping the spending ambitions of the net beneficiaries, EU leaders have to agree on new sources of revenue for the EU budget, ones that would not come directly from national coffers.

Among the proposed options, rejected by some countries and supported by others, is a share of the cash that EU governments get from selling CO2 emissions permits to companies and a share of the tax on goods imported into the EU that were made in countries where climate policies are weaker than in the EU.

Other revenue options include a tax on non-collected e-waste, a share of the tobacco excise duty and an annual lump-sum contribution from large companies operating and selling in the EU.

Further proposals include a levy on extreme wealth, on digital services, on online gambling and on crypto asset capital gains.

While leaders are unlikely to make decisions on June 19 on which new revenue streams they want to give to the EU, they will indicate their preferences to allow the incoming Irish EU presidency to prepare a new compromise proposal for October. REUTERS