The new EU budget: If you thought it was done and dusted, think again

#CriticalThinking

EU budget-bashing is a common practice, and not just among eurosceptics. The EU’s Parliament, Council and Commission will be battling each year over the €960bn Multiannual Financial Framework spanning 2014-2020. This factsheet aims to set the record straight and detail the tasks ahead after last December’s agreement on the €145bn spending plan for 2015, and looks at the battle lines being drawn for annual budgets for 2016 and beyond.

The 2014-2020 MFF saw the first EU budget cut in real terms – What’s for the axe?
Farm supports and EU spending on cohesion, which includes structural funds for Europe’s poorest regions have been reduced, although both are still the EU’s biggest budget lines. Cohesion spending will fall by around €7bn to €64bn over seven years. On the other hand, this will mean record increases in spending on measures aimed at economic growth as well as on home affairs, justice and external relations. There’s a small increase in the 2015 budget to permit the funding of unpaid bills, as well as some accelerated spending to boost the economy. European Parliament insiders have called it a “budgetary straightjacket” because it oversteps their own five-year mandate as MEPs.

Is it true that EU spending gets out of control?
Yes and no. On paper the EU is always on a short leash, to be financed “wholly from own resources.” The reality is a widening gap between commitments and funding, resulting in the ballooning of unpaid bills that at the end of 2013 amounted to €24bn. In the European Parliament there’s talk of a “nuclear option” in which the European Commission would take the Council and Parliament to court to force the issue. It’s a key point of contention that policymakers will be looking to resolve this year.

Now, it’s future-oriented sectors that will get more
Spending on R&D, SMEs, education and a pan-European investment vehicle called the Connecting Europe Fund is to rise by more than a third. The Horizon 2020 budget stands at €80bn for research and innovation, although controversially the Commission wants to divert €2.7bn of that to boost its own cash contribution to the €315bn European Fund for Strategic Investments, dubbed the Juncker investment plan.

The truth about the EU ‘gravy train’
The belt is tightening. EU administrative costs remain stable at about 6% of the total MFF spending plan. A reform package is expected to save 8 billion euros by 2020. Since 2013, the Commission and other EU Institutions have cut staff numbers by 1% each year, ultimately reducing headcount by 5% by 2017, while at the same time increasing working hours. There’s also an effort to burn time-wasting red tape. For 2014-2020, funding rules are to be simplified, with more use of “e-reporting” via the Internet.

Does the EU waste taxpayers’ money?
There have over the years been various scandals over how EU money is spent, but the Commission says proven cases of fraud total only 0.2% of the budget. Roughly nine-tenths of the budget is spent by the member states themselves, where EU authority and oversight is limited, and that’s where most of the errors or abuses have been reported. Of late, the EU has postponed or withheld millions in funds to Romania and Bulgaria because of corruption scandals, and southern Italy has at times made headlines over what’s described as “multiple applications” for CAP payments.

How adjustable is the EU’s seven-year spending plan?
Structural funds – including the CAP – are not adjustable; they’re aimed at reducing regional disparities and are the budget’s largest element. But a so-called Flexibility Instrument, or FI, allows adjustments due to unforeseen events or new priorities. For 2014 and 2015, the FI is to provide additional structural funds for Cyprus of €100m a year in response to the economic crisis there. In 2016, the Commission is due to re-evaluate the seven-year spending plan in the light of prevailing macroeconomic conditions.

Why does the EU budget never get a full green light from the EU’s auditors?
Stay tuned. The Commission says EU’s accounts are signed off every year, but not the payments, as the Court of Auditors demand a maximum error rate of 2% and the actual rate is between 5 and 6%. Auditors and policymakers are discussing how to improve accountability.

The Budget rows just over the horizon
The European Commission is to unveil its 2016 annual spending plan this summer, and in the meantime must come up with a plan by the spring for solving the unpaid bills issue – the difference between commitments and payments. By 2016, the EU Commission will also present its proposal for the mid-term review of the MFF. There’s an argument over whether the Commission should cut the time period to five from the seven years, which is inherited from the days of the Delors Commission 20 years ago.

That year will also see the High Level Group on Own Resources being chaired by Mario Monti, former Italian Prime Minister, deliver its final recommendations on the best way to fund at least a portion of the EU budget in the future. Among the options being fought over are a carbon tax on imports, a financial transactions tax (FTT), the use of EU fines, and the earmarking of a portion of national VATs.

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