The proposed new streams of revenue to finance the EU’s ambitious €800 billion coronavirus recovery fund must not negatively impact consumers and vulnerable groups, the European Economic and Social Committee (EESC) has cautioned in a draft opinion. Moreover, the EESC stressed that any possible financial burdens from such proposals must be fairly distributed among Member States by taking into consideration their respective structural differences.

The warning was sounded in a draft opinion presented by Prof. Philip Von Brockdorff, who is the of UHM Voice of the Workers representative in this European institution which comprises social partners from the bloc.

Prof. Von Brockdorff was the rapporteur on an opinion, which is yet to be approved, in reaction to a proposal rolled out last year by the European Commission on how the bloc should raise the necessary budget to repay the money borrowed for the €800 billion Covid-19 recovery fund, called Next Generation EU.

Where is the money coming from?

Under the commission’s proposal there will be three new “sources” of revenue which will generate an estimated €17 billion annually from 2026 to 2030.

The EU emissions trading scheme (ETS), which auctions permits allowing certain industries to emit carbon dioxide, will provide the most money to the EU budget. Currently, most of these revenues go to national budgets, but the EU executive now wants 25% to flow into EU coffers. That equals an average of €9 billion annually between 2023-2030, based on 2018 prices, according to the European Commission.

The second climate-related revenue stream the Commission wants to channel into the EU budget, is the Carbon Border Adjustment Mechanism, which will put a price on certain carbon-intensive goods entering the EU. Once it comes into force, the Commission will take 75% of its revenues, expected to be an average of €1 billion per year.

Meanwhile, the Commission proposed that 15% of the additional corporate tax revenue that EU member states will receive following October’s OECD tax deal should bolster the EU’s own resources. This will provide roughly between €2.5 and €4 billion annually, pending the finalisation of the agreement.

EESC welcomes proposals but cautions on possible impacts

In its remarks the EESC noted that a financial model relying on own resources rather than direct Member States contributions would be a step in the right direction as it would avoid budget cuts or higher national contributions.

However, it cautioned on the costs of an emissions trading system for buildings and transport as this could outweigh the desired benefits and could lead to uncontrollable price spikes. The EESC also referred to the huge challenge of designing an effective and fair compensation mechanism in an EU comprising 27 Member States with often very different socio-economic and climatic contexts.

Whereas the EESC agrees with the three proposed streams of revenue, it remarked that any additional tax burden must be coupled with a reform of taxes and some compensatory mechanism at national levels, to mitigate possible negative impacts on consumers and vulnerable groups.  

As for the proposal to channel part of corporate tax revenues to Brussels, the EESC insisted that this should not give rise to new burdens for households and businesses. Where necessary, the EESC recommends coupling this transfer with a reform of taxes on other levels. Furthermore, it argued that a level playing field is necessary in the international tax system so that that EU businesses are not places at a competitive disadvantage. Hence, the application of the new rules in the EU should not be implemented before major trading partners.

The own resources decision must be unanimously approved in the Council, after consulting the European Parliament. The decision can enter into force once it has been approved by all EU countries and changes in the EU Budget regulations adopted unanimously by the Council after Parliament’s approval.