Brussels proposes EU budget freeze, calls for financial tax

Jun 29, 2011, 18:55 GMT

Brussels - The European Union's budget should be frozen in real terms and its bureaucracy slimmed down, while its resources should come from a new tax on the financial sector, the bloc's executive proposed on Wednesday.

Amid the current wave of austerity gripping Europe, the European Commission has been under pressure to curtail spending, with Britain, France, Germany, Finland and the Netherlands calling on budget rises to be capped to inflation.

After six hours of deliberations, the 27 members of the commission decided to limit spending over 2014-2020 to 972 billion euros (1.4 trillion dollars), equal to 1 per cent of the bloc's gross national income (GNI).

That compared to 926 billion euros over the current multi-annual budget, running from 2007 to 2013.

'It is more or less the same amount,' Commission President Jose Manuel Barroso said in an evening news conference held after the budget plans had been presented to the European Parliament.

The commission also called for radical reform in the way the EU is financed, calling for money for Brussels to be raised through a 'financial sector tax,' as well as by tweaking an existing system based on the national collection of value added tax (VAT).

The financial tax proposal is controversial. Britain and Sweden have vowed to oppose it as long as no global agreement is found on imposing it - a near impossible prospect at the moment.

Currently, 75 per cent of the budget is covered by national contributions linked to members' GNI. The commission aims to reduce that share to make the EU more independent from national pressures.

Barroso had already called for a financial sector tax earlier this month, but did not say he would like it to finance the EU's budget.

As part of the austerity drive, administration costs are to be capped, staff numbers are to fall by 5 per cent by 2018, EU personnel's retirement age is to rise from 63 to 65, and their working week from 37.5 to 40 hours, EU parliamentarians familiar with the proposals said.

Agriculture and regional aid, which currently make up 75 per cent of the budget, saw their allocations slightly cut, freeing up resources for research and innovation, migration and foreign policy.

Countries under a bailout programme - such as Greece, Ireland and Portugal - should be able to receive a larger share of EU regional funds, Barroso said.

A 50-billion-euro expenditure to finance transport, energy and internet infrastructure, also by leveraging private investment, was also proposed.

But some 58 billion euros of spending - such as on the ITER nuclear reactor - were kept off the balance sheet, undermining the commission's claim of having achieved a budget freeze.

Wednesday's draft is set to form the basis for negotiations between EU governments, which have to strike a deal, by unanimity, by late 2012. Talks are usually resolved by 11th-hour compromises in late-night summits.

A variety of potential conflicts - beyond those on the financial sector tax - await.

France, for example, is the strongest advocate of agriculture spending; new member states in the east, led by Poland, plead for more regional aid; Britain can be relied upon to defend its special rebate.

That concession was extracted by then-prime minister Margaret Thatcher in 1984, when Britain's contribution to the EU's budget was disproportionately high compared to other partners.

That is no longer true, as in 2009 the country's net contribution was only 1.9 billion euros, against Germany's 6.3 billion euros, Italy's 5.9 billion euros and France's 5 billion euros.

Poland, on the other hand, was the largest receiver of EU money that year, with a 6.3-billion-euro net surplus, followed by Greece's 3.1 billion euros.

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