The Draft EU budget focuses on priorities such as growth, jobs and a solid response to the refugee crisis.

On 30 June, the European Commission submitted the 2017 draft Budget (DB) to the European Parliament and the Council, the two arms of the “budgetary authority” for a decision.

The 2017 DB is based on 28 Member States: the UK remains a member of the EU with all rights and obligation. So, the result of the UK referendum has no impact on DB 2017.

When the EU Council and the European Parliament approve the annual EU budget, total revenue must equal total expenditure. The amounts of the DB 2017 are €134.9 billion.

We propose the overview of the DB 2017, the aims and the forecasts.

The 2017 DB priorities

The 2017 DB has two priorities: to support investments in growth, jobs and competitiveness; and the receipt and integration of refugees. The other aims consist of promotion of digital market, to achieve a resilient energy union, to make deeper the internal market and economic and monetary union.

The DB 2017 revenues

The budget is financed by own resources (that provide the EU’s main revenue) and other revenue (taxes on EU staff salaries, contributions from non-EU countries to certain programmes, fines on companies for breaching competition laws, etc.).

There are three types of own resources: sugar sector levies; custom duties; value added tax (VAT) bases; Gross National Income (GNI); correction mechanisms (also called, correction).

The DB 2017 estimates the sugar sector levies to EUR 124,7million (after deduction of 25% retained by member states as collection costs); customs duties (on imports from outside the EU) amounts to EUR 20000, 5 million (after deduction of 25% retained by member states as collection costs). Instead, VAT is forecasted to be at EUR 6477447, 9 million and the EU GNU is forecast at EUR 15033319.9 million.

As far as concern VAT, a standard percentage is levied on the harmonised VAT base of each EU country. The VAT base to be taxed is capped at 50% of GNI for each country. This rule is intended to prevent less prosperous countries having to pay a disproportionate amount (in such countries consumption – and so VAT – tend to account for a higher percentage of national income) (see below Correction and Future own resources system).

One more, a standard percentage is levied on the GNI of each EU country with the aim to balance revenue and expenditure, i.e. to fund the part of the budget not covered by other sources of income.

The DB 2017 shows also other sources of revenue, e.g.: taxes on EU staff salaries; contributions from non-EU countries to certain programmes; fines on companies for breaching competition laws, etc.

Correction mechanisms (correction)

Correction mechanisms are designed to correct excessive contribution by certain States. There are different mechanisms.

• the UK rebate:  that reduces the United Kingdom’s contribution to the EU budget since 1985. It consists in a complex calculation which equates to approximately 66% of the UK’s net contribution – the amount paid by the UK into the EU budget less EU expenditure in the UK. The cost of the UK rebate is divided among EU Member States in proportion to the share they contribute to the EU’s GNI.

Germany, the Netherlands, Austria and Sweden, who considered their relative contributions to the budget to be too high, pay only 25 % of their normal financing share of the UK correction.

• lump-sum payments: the Netherlands and Sweden benefit from gross reductions in their annual GNI contribution of EUR 605 million and EUR 150 million respectively.
• reduced VAT call rates for Austria (0.225 %), Germany (0.15 %), the Netherlands and Sweden (0.1%).

The other sources of revenue include taxes and other deductions from EU staff salaries, bank interests, contributions from non-EU countries to certain programmes, interests on late payments and fines.

Future own resources system

On 26 May 2014, the Council adopted a legislative package, including a new own resources decision, introducing some changes to the own resources system for the period 2014-2020. Qui link

The following principles will apply to the Multiannual Financial Framework 2014 – 2020 (MFF):

• collection costs for traditional own resources will be lowered to 20 %;
• the UK rebate will continue to apply;
• Denmark, the Netherlands and Sweden will benefit from gross reductions in their annual GNI contribution of EUR 130 million, EUR 695 million and EUR 185 million respectively. Austria will benefit from gross reduction in its annual GNI contribution of EUR 30 million in 2014, EUR 20 million in 2015 and EUR 10 million in 2016;
• reduced VAT call rates for Germany, the Netherlands and Sweden will be fixed at 0.15 %.

The  2017 expenses

We also said that the DB 2017 reflects and support the political priorities set by the EU President: in particular, the effort to the increase jobs, growth and investment, and to give a response to the challenges of migration management and the fight against terrorism and organised crime. The money specifically for supporting economic growth will total €74.6 billion in commitments in 2017, compared to €69.8 billion in 2016 and  the Draft EU, while the resources forecast for security: €111.7 million. The other priorities supported by the DB 2017 concerned the Energy Union strategy addresses security of energy supply, the internal energy market, energy efficiency measures, research and innovation, and climate action.

The background

The EU DB amounts to roughly 1% of EU Gross domestic product (GDP).

Thanks to its multiplication effect and its focus on results, it has a big impact. For instance, the Commission estimates that from 2007 to 2013, the average increase in GDP as a result of cohesion policy is estimated at 2.1% a year in Latvia, 1.8% a year in Lithuania and 1.7% a year in Poland.

Alessandra Villa