February 15, 2018
How will the EU finance itself after Brexit?
The European Commission has produced a very clear document setting out budgetary options for life after Brexit. It tells us how the future spending priorities will shift, and how they can be paid for. One does not need rocket science to conclude that an organisation with a fixed budget constraint, an increase in the number of spending areas, and facing the departure of a large net contributor, requires either a cut in spending or an increase in revenues, or both. A cut in EU spending is hardly likely given the declared ambition to strengthen the EU’s role in immigration control and foreign and security policy. So, where will the new money come from?
The document lays out a number of options for an increase in the EU’s own resources. Currently there are three sources: a share of customs revenues, a share of VAT revenues, and the bulk coming in the form of a transfer from member states of a small percentage of gross national income. The Commission is now looking into three new potential sources of funding. These are revenues shares from:
- emissions trading, with a possible revenue share of between €7bn and €105bn;
- a common consolidated corporate tax base, which could raise €21bn-€140bn;
- seigniorage (profits of the European system of central banks), with a possible revenue share of €10.5bn.
It is no surprise that these proposals are causing an outcry in the member states with a large net contribution. A common corporate tax base is going to be particularly tricky when UK corporate taxes are on a downward trajectory towards 17% before 2021, when the EU’s next multi-annual financial framework will take effect. We can’t say to which extent revenues from emissions trading or seignorage are realistic, and believe that the most likely source of additional funding will continue to be direct contributions from member states.