10/05/23

EUROPE: Lawmakers propose transactions tax among new sources of cash to repay joint debt.

As published on financialpost.com, Wednesday 10 May, 2023.

European Union lawmakers called on Wednesday for new sources of revenue for the EU, including a financial transactions tax and a digital levy, to help it repay joint borrowing during the COVID pandemic and cover various new spending needs.

A European Parliament report adopted on Wednesday said new revenue sources could also include a slice of national corporate taxes, a levy on share buybacks and a fair border tax to be paid by firms that, in their global supply chains, do not pay workers enough for them to escape poverty as defined by the World Bank.

The parliament also suggested the 27-nation EU get cash from a tax on member states that have the highest gender pay gap, do not recycle enough biowaste, or which waste the most food.

The new revenue sources for the supranational EU to pay for its policies would come on top of the existing ones: national contributions, cash from customs duties on goods coming into the EU, a small slice of national Value Added Taxes, and a tax on non-recycled plastic, all adding up to roughly 1% of EU GDP.

The parliament’s report is meant to influence a proposal from the executive European Commission, the only EU body that can suggest new laws, on new EU revenue sources, called “own resources,” that is due between June and September.

“New own resources are necessary to avoid the next generation of Europeans paying the price for the repayment of the principal and the interest of the funds borrowed under Next Generation EU,” the parliamentary report said.

The Next Generation EU plan was an unprecedented joint borrowing scheme agreed by the EU in 2020 to raise more than 800 billion euros that would finance the post-pandemic economic EU recovery and green and digital transformation.

The EU will start repaying that debt from 2028 and must establish new revenue streams for that purpose.

It is already working on getting cash from its Emissions Trading System (ETS), from an OECD-agreed global tax on the biggest multinational firms and from a border tax on imported goods based on the level of CO2 emitted in their production.

But money from the ETS, the OECD tax and the carbon border tax will only provide roughly 6.5 billion euros a year, while the EU will need some 15-20 billion annually for 30 years.

“Additional resources are therefore essential,” the parliament’s liberal Renew group, whose MEP Valerie Hayer co-authored the report, said in a statement.

More challenges to EU finances come from the Russian invasion of Ukraine, which forced the EU to sharply step up defense spending and slash its imports of Russian gas and oil.

The EU also has to spend on ambitious climate and digitalisation policies and to withstand competition from China and the United States, which are spending heavily to position themselves as leaders in renewable energy and “green” industry.