Reforming the EU budget-a practical approach

Jorge Núñez FerrerEU Budget Review: Benefit for Europe and Lithuania

12th October 2007Presidential Palace Hall of Columns

Vilnius

Back to basics:objectives and principles

• Budget is too politicised– Quality and rationale damaged -> rebates

• Principles:– Subsidiarity– Proportionality– Additionality– Added Value

• Cost efficient• Objective efficient

– European Public Goods– European Value Added

The present situation• The budget does not reflect well the EU

aspirations and the economic and political objectives– 80% of the budget is supposed to be

cohesive across regions and sectors (CAP), but relation between GDP per capita and distribution nearly 0, even in EU 27 after full phasing in.

– CAP is a important and serious issue

Common Agricultural Policy

• Scores badly on principles• Support is supposed to be for income

support and farm practices.– Calculation has nothing to do with the aims.

• Much more could be done with the resources available or the same for much less. Large opportunity costs are associated to the policy

• Does not address modern challenges

Other budget items• Better score on principles, but:• Structural Funds could be better designed, but

much depends on member states strategic planning and capacities. The Commission does not have the capacity and incentive to influence this much.

• Rural development funds still subservient to the CAP, even in distribution

• External action and security very underfunded while theoretically optimal at supranational level

• Environment not well integrated

Reforming the budget

• Depoliticise the budget

• Expenditures should be more efficient and better targeted

• Avoid creating waste and growth damaging investments

• What does it mean in practice?

• CAP– Replace direct payments in line with the given

objectives: • “income support” => based on farm household incomes

• “Good farming practices” based on costs and limited – not to farms with high turnover

• Allow the redistribution effects!

• Emancipate Rural Development from the CAP– Modulation should have no link with origins of funds, funds

cannot be distributed based on 1989-91 yields in Europe

– Measures should be widened in scope and eligibility criteria tightened

• Structural Funds: – Improve targeting– Create stronger conditionalities, not based on absorption,

but impacts; penalise unjustified underperformance and irregularities

– Increase the national responsibility for auditing

• Careful with R&D expansion– % share of public R&D in Europe not low, it is the private

share! Review EU & national tax and regulatory situation– DO not allow R&D to become net balance redistributor.

• Strengthen justice and security• Strengthen environment (e.g. climate change

adaptation and mitigation)

Resources?• After TOR

• Easiest if real VAT based

• + GNI marginal correction – VAT + marginal = national GNI share

• Still Corrections because of expenditures?– Special transparent correction heading OUT

of the budget GNI ceiling (redistribution, not cost)