One of the European Parliament’s senior members, Rainer Wieland (EPP-Germany),stated in an interview that long-term budgeting doesn’t make a whole lot of sense. He’s right. His conclusion, however, does not pass muster.
The EU budget
Five-year economic plans or seven-year budgets are the hallmarks of collectivist regimes. Stalin’s first Five Year Plan came to replace another long-term central planning project, the New Economic Policy instituted by Lenin. All of these plans were noted for their crashing failures, having led to staggering economic inefficiencies and collapse. We’ve learned (at least some of us) that managing the economy is not something the government can do.
The reason why the European Union will soon decide on a budget for the period 2021-2027, called the Multiannual Financial Framework (MFF), is not because it is pretending to collectivise and run the economy (although some surely would enjoy such a prospect), but rather because it fears that its policy objectives would constantly be held up by budgetary constraints otherwise.
The MFF emerged to resolve several institutional and political crises related to the adoption of the budget in the 1980s. What were then called the “multiannual perspectives” were initiated by Jacques Delors during his tenure as President of the European Commission and covered the period 1988-1992 (Delors Package 1). They were followed by the Delors 2 Package (1993-1999) and Agenda 2000 (2000-2006), then the 2007-2013 MFF.
The withdrawal of the United Kingdom from the EU will lead to a decrease in the EU’s Gross National Income (GNI), making it difficult to compare the current reduced EU budget – after the exit of the United Kingdom – with the next MFF. If the share of the 2014-2020 MFF on EU-27 GNI was previously 1.16%, it is now 1.11% of the current virtual GNI of the EU-27 in the new MFF 2021-2027, while, at the same time, these new proposals represent an increase of 5% in the UK’s amputated MFF. Furthermore, the amount proposed for the MFF 2021-2027 is much lower than that of the European Parliament and the European Committee of the Regions (CoR), which suggested 1.3% of GNI.
Where do EU officials want to increase spending? Everywhere.
European actors agree on the principle of combating powerlessness in the face of crisis. In this context, the European Parliament would like to see an increase in funds for asylum, immigration and integration. Member states generally agree with the Commission’s policy towards innovation, education and research. Notwithstanding the significant increases anticipated for these programs, Parliament is proposing that appropriations be set (?) even higher. However, the CoR fears that the increased support for programmes such as Erasmus+ could “undermine the cohesion policy and CAP budget.” (?)
Long-term budgeting results in short-term clashes
There is nothing wrong with long-term budgetary planning; however, the aforementioned discussions are likely to frustrate political leaders throughout the seven-year process. If new priorities arise, the only way to go about funding them would be to establish specific EU taxes, as seen in recent discussions regarding plastic or carbon taxes
For now, there is an equilibrium.
The reform in question concerns traditional own resources. Member states will only be able to retain 10% of the “collection costs” of customs duties instead of 20%. Additionally, the VAT-based own resource will be simplified. National contributions will remain the complementary equilibrium resource but their weight will decrease from 72.1% of own resources in 2018 to 56.8% in 2027. This means that the EU is slowly wriggling itself out of its financial dependence on member states.
Wieland is right
In an interview with Euractiv, MEP Rainer Wieland said:
“Planning the world seven years in advance is absurd. In Germany, we have one or two-year budgets and I would consider that to be a reasonable duration for a budget backed by a flexible medium-term financial framework.”
He is right: the ability to quickly adapt to changes and needs is essential. Why would the government keep spending money on programmes in seven years if we already know that they will no longer be needed in three?
However, Wieland then adds:
“We should put an end to that. We need a dynamic or automated revenue stream for the EU, either based on its own real resources or tax share levied by member states. This revenue would vary in accordance to new developments in each member state.”
An automated revenue stream would do exactly that: it would make the Union in Brussels independent from the bottom-structure that countries such as Switzerland have, thereby increasing its power. This would present multiple problems:
- Centralised entities are more inefficient and wasteful
- Powerful central government often tends towards government overreach
- Government reform becomes significantly harder once the revenue stream is established and deemed unchangeable
So yes, Rainer Wieland is correct that it is ludicrous to have a seven-year budget. His proposed solution, however, is the exact opposite of what we need.
This article was first published by Values4Europe.
Pictures are Creative Commons.
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