European Parliament Finally Approves EU Budget

by Ulrika Lomas, Tax-News.com, Brussels

10 April 2006

The European Parliament has finally agreed to accept the European Union's budget for the next seven years, but only after securing additional funding on top of the hard-won deal struck by EU leaders last year.

After a tortuous series of negotiations, EU leaders agreed the next seven-year EU budget in the early hours of December 17, with both the UK and Germany giving up money to go towards development support in the 10 new member states, including Cyprus and Malta.

The major stumbling blocks were the UK's reluctance to concede its budget rebate, and France's reticence to give up farm subsidies under the Common Agricultural Policy.

In January, the European Parliament's Budget Committee unanimously rejected the agreement reached on the EU's 2007-2013 budget by heads of government in December, after MEPs criticised the level of provisions agreed by the summit.

The Budget Committee then approved a report by German Christian Democrat Reimer Böge, which rejected the leaders' position on the future budget "because it does not guarantee an EU budget enhancing prosperity, competitiveness, solidarity and cohesion in the future".

Despite securing an extra EUR4 billion in funding on the deal the Council had struck in December under the UK Presidency, many MEPs remain dissatisfied with the new figures. However, it was felt that reaching a deal was essential for all concerned.

The new funds are to be added to programmes that President of the European Parliament Josep Borrell said would have suffered deep cuts, including Erasmus, the lifelong learning programmes, innovation and aid for SMEs.

Commenting on the new agreement, European Commission President Jose Manuel Barroso noted that: “No-one is completely happy, but this is a good demonstration on the spirit of partnership, I hope we can move swiftly to build on this momentum to get all our programmes up and running in time for next year.”

However, Böge, of the European People's Party, stated that the manner of the agreement demonstrates the need for change in the EU budget process, noting that all sides have "reached the pain threshold".

"In current circumstances we have reached the very limits for an acceptable solution," he remarked.

"Parliament was not just obsessed with figures – we wanted reform of policy, new instruments, the cutting of red tape and guarantees for Parliament's role on foreign policy instruments," he stated.

Böge also wants the parliament to play "a proper role" in the 2008-9 review of the EU budget mechanism, which aims to streamline the current procedure.

In calling for the budget review, Barosso stated that no options should be left off of the table, even the politically thorny issue of a direct tax mechanism to fund the EU budget.

Currently, the EU's budget is funded through a combination of VAT receipts, import duties and direct contributions from member states, a system which has led to resentment in some of the larger member states, which don't see why they should end up indirectly subsidising public projects in the newer and poorer member states.

“We have to find a way of avoiding such a direct link between national budgets and the European budget,” Barroso has said in the past.

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