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EU Commission aims at long-term EU budget to face most urgent challenges

Jun 20, 2023 , , , , , , ,

Brussels, 20 June 2023
The European Union (EU) has faced a series of unprecedented and unexpected challenges since the adoption of the Multiannual Financial Framework (MFF) in 2020. Barely out of one of the deepest global economic crises in more than a century, Russia’s brutal invasion of Ukraine had huge humanitarian, economic and budgetary consequences.

Migration has picked up after the pandemic, putting strains on Member States’ reception and integration capacities. Under the New Pact on Migration and Asylum, the Union and the Member States will be taking on new responsibilities, which imply additional costs.

The steep acceleration in inflation and interest rates has impacted the Union’s budget, amongst others through a sharp increase in NextGenerationEU funding costs.

Following a series of global supply chain disruptions, the EU is working to increase its open strategic autonomy. Significant investment is needed to foster long-term competitiveness in technologies crucial for Europe’s leadership.

Within its current bounds, the EU budget has powered a strong EU response, by drawing from its limited built-in flexibilities and through extensive reprogramming. Addressing these multiple challenges has pushed the resources of the EU budget to the point of exhaustion, hindering the EU budget’s capacity to address even the most urgent challenges.

Today’s proposals seek to provide for targeted reinforcements in a limited number of priority areas, to ensure that the EU budget can continue to deliver on the most essential objectives. The main elements are:

  •  A Ukraine facility, based on grants, loans and guarantees, with an overall capacity of €50 billion in the period 2024-2027 to cater for Ukraine’s immediate needs, recovery and modernisation on its path towards the EU.
  •  A reinforcement of the EU budget to address internal and external dimensions of migration as well as needs arising from the global consequences of Russia’s war of aggression in Ukraine, and to strengthen partnerships with key third countries with €15 billion.
  • A Strategic Technologies for Europe Platform (STEP) to promote the EU’s long-term competitiveness on critical technologies, in the fields of digital and deep tech, clean tech and biotech. For a quick and effective deployment on the ground, this platform builds on and tops up existing instruments including InvestEU, the Innovation Fund, the European Innovation Council (EIC) and the European Defence Fund, while also introducing new flexibilities and incentives for cohesion funding and the Recovery and Resilience Facility.
  • An efficient mechanism to cater for the higher NextGenerationEU funding costs due to the unprecedented surge in interest rates. A new special ‘EURI Instrument’ will cover exclusively the costs that come on top of the original projections that were made in 2020.

In addition, the EU administrative capacity will be adjusted to cater for the new tasks that have been decided by the co-legislators since 2020 and to meet inflation-adjusted contractual obligations.

European Commission President von der Leyen said:

“Our budget is a key policy tool to respond to the enormous challenges we face collectively. But pressures are increasing. Today we propose a targeted increase in EU spending to provide stable financial support to Ukraine, to finance our action on migration, and to support investments in strategic industries. We are stronger together.”

Areas to be reinforced
1. Long-term support for Ukraine

As part of today’s revision, the Commission is proposing a dedicated Facility to support Ukraine up to 2027. This will come in the form of an integrated and flexible instrument with an overall capacity of €50 billion over 2024-2027. The annual amounts will be defined each year depending on Ukraine’s needs and the evolving situation. This instrument will ensure stable and predictable funding under a framework that contributes to the sustainability of Ukraine’s finances while ensuring the protection of the EU budget.

Underpinned by a Ukraine Plan to be presented by the Government of Ukraine, the Ukraine Facility will support Ukraine’s efforts to sustain macro-financial stability, promote recovery as well as modernise the country whilst implementing key reforms on its EU accession track.

Funding will be provided in the form of loans and non-repayable support (grants and guarantees). The actual split between loans and grants will also be decided annually.

The loan support will be financed by borrowing on financial markets and backed by the headroom of the EU budget. The non-repayable support will be financed through the EU annual budget under a new special instrument, the “Ukraine Reserve” with resources over and above the MFF expenditure ceilings.

2. Managing migration, strengthening partnerships and addressing emergencies

The instability in Europe’s neighbourhood and the humanitarian needs in third countries are deepening. To continue to be able to address internal and external migration challenges and strengthen the EU partnerships with key third countries, the Commission is proposing the following targeted reinforcements to the EU budget.

  • To provide sufficient funding for managing migration and border control as well as the implementation of the New Pact on Migration, the Commission proposes to provide €2 billion.
  • To allow the Union to respond to heightened economic and geopolitical instabilities, the Commission proposes to increase the ceiling of Heading 6 (Neighbourhood and the world) with additional €10.5 billion.
  • To support the Union’s capacity to react to crises and natural disasters the special instrument ´Solidarity and Emergency Aid Reserve´ should be increased with €2.5 billion.
3. Promoting long-term competitiveness via a Strategic Technologies European Platform (STEP)

To support the competitiveness of the EU industry through investments in critical technologies, as announced by President von der Leyen in her State of the Union address of September 2022, the Commission proposes the creation of a new Strategic Technologies for Europe Platform (STEP) with the capacity to generate €160 billion of investments.

STEP will build on existing programmes: InvestEU, Innovation Fund, Horizon Europe, European Defence Fund, Recovery and Resilience Facility, EU4Health, Digital Europe and cohesion funds. In addition, an innovative and dynamic structure will be set up to direct existing funding towards STEP projects and speed up implementation in areas which have been identified as crucial for Europe’s leadership.

Across programmes, the Commission proposes a ‘Sovereignty seal’ enabling better access to funding across EU-funded instruments.

To boost investments in the development and manufacturing of critical digital and deep tech, clean tech and biotech and in their respective value chains, the Commission further proposes to allocate an additional €10 billion to targeted programmes: €3 billion for InvestEU, €0.5 billion to Horizon Europe, €5 billion to the Innovation Fund and €1.5 for the European Defence Fund. These top-ups, together with the cohesion policy and RRF incentives, have the potential to generate around €160 billion investments by European businesses in projects promoting European sovereignty.

Finally, the Commission proposes the creation of a new ‘One-Stop-Shop’ and a dedicated new online Sovereignty Portal to support projects’ promoters and EU countries in their STEP investments supported by the different EU funds.

Next steps

The proposed amendments to the budget, as well as the various legislative proposals presented today, will now be taken forward with the European Parliament and EU Member States in the Council.

To make sure the EU has the necessary resources to continue to address the challenges of today and tomorrow, a timely agreement on the package is essential. The Commission counts on the Spanish Presidency of the Council of the European Union to take work in the Council forward in view of a swift agreement immediately after the summer. The negotiations, including the Parliament’s consent, must be concluded before the end of the year, given that urgent budgetary constraints will already materialise in 2024.

Background

In 2020, the EU agreed its 2021-2027 long-term budget. Together with the NextGenerationEU recovery instrument, it amounts to €2.018 trillion in current prices, making up the largest stimulus package ever financed by the EU. Since 2021, the budget has been instrumental to help repair the economic and social damage caused by the coronavirus pandemic and aid the transition towards a modern and more sustainable Europe.

As part of the agreement on the budget, the Commission committed to present a review of the functioning of the MFF accompanied, as appropriate, by proposals for its revision. The proposal put forward today delivers of this commitment.

For More Information

Question and Answers: Commission proposes to reinforce long-term EU budget to face most urgent challenges

Questions and Answers on EU budget: Commission proposes STEP to support European leadership on critical technologies

Press release STEP

Strategic Technologies for Europe Platform

Ukraine: Commission proposes to set up a dedicated Facility to support Ukraine’s recovery, reconstruction and modernisation

Factsheet – A New Ukraine Facility

Questions and Answers – A new Ukraine Facility

Legislative texts

Quotes

The EU budget has been instrumental to the EU’s recovery from the pandemic, while supporting the green and digital transformation and the long-term resilience. The EU budget has also been the monetary expression of the EU’s unconditional support to Ukraine. The multiple challenges over the past years have exhausted its flexibilities and capacity to react to future crises. If we want to be able to continue to rely on it, we need to act now. Today’s proposed revision is a realistic and targeted way forward.

Johannes Hahn, Commissioner for Budget and Administration – 20/06/2023
Source – EU Commission

Q&A: EU Commission proposes to reinforce long-term EU budget to face most urgent challenges

 

Brussels, 20 June 2023

MAIN ELEMENTS
What are the main conclusions of the review?

The review has drawn several conclusions:

  • The EU budget has been very effective in responding to unexpected needs and crises since the adoption of the Multiannual Financial Framework (MFF) in 2020. This response has come through significant redeployments and reprioritisation, as well as use of the limited available flexibilities. For instance, existing funds have been used to respond to the energy crisis with REPowerEU. Cohesion Policy funds have been mobilised to support Member States with the reception of people fleeing the war in Ukraine. As a result, budgetary flexibilities are now largely depleted.
  • The EU budget has been instrumental to support Ukraine, in an expression of EU’s unconditional support in the fight against the Russian aggression. However, the EU budget is not currently equipped to provide the additional substantial support that Ukraine needs for the remainder of the MFF period (to end-2027).
  • Implementation of EU funds is progressing, although with some differences. For some programmes – in particular under cohesion policy – implementation by managing authorities has started with some delay and an acceleration is now needed.
  • A quicker and targeted deployment of financial support is needed to support EU competitiveness. This could be achieved through the leveraging and reinforcement of existing EU instruments.
  • Interest rates have increased at an unprecedented pace as inflation rose and the economic environment has become less favourable. This affects borrowing costs, including those for NextGenerationEU.

In short, a targeted revision of the MFF is necessary to equip the MFF with the means to ensure that the EU can meet its legal obligations and address the most urgent priorities.

How much more money are you proposing? For which programmes?

The proposal covers a targeted set of political priorities and necessary technical adjustments to the 2021-2027 budget to ensure that it can deliver until the end of the period.

More concretely:

  • To cater for Ukraine’s immediate needs, recovery and to support Ukraine on its European path, the Commission is proposing the creation of a flexible instrument with an overall capacity of €50 billion. This instrument will provide repayable (loans) and non-repayable support (grants and guarantees). The financial architecture for the support to Ukraine offers a balance between programmability and flexibility, with the possibility to calibrate the support annually in light of the evolving needs and situation on the ground, while facilitating reforms and investments in Ukraine in light of its EU integration path.
  • The Commission proposes the creation of the Strategic Technologies for Europe Platform (STEP), building on existing programmes such as InvestEU, Innovation Fund, Horizon Europe’s European Innovation Council, European Defence Fund, EU4Health, Digital Europe, while incentivising further funding from the Recovery and Resilience Facility (RRF), and cohesion policy funds. This Platform will allow to direct existing funding towards STEP projects and speed up implementation in digital and deep tech, clean tech and biotech sectors which are crucial for Europe’s leadership. To boost the investment capacity dedicated specifically to the priorities of the STEP, the Commission further proposes to allocate an additional €10 billion, which together with the incentives under cohesion policy and RRF is expected to leverage up to €160 billion of investments.
  • To address the needs related to migration pressures, to strengthen global partnerships and to respond to emergencies, the Commission proposes to increase Heading 4 of the MFF (“Migration and Border Management) by €2 billion, Heading 6 of the EU Budget (“Neighbourhood and the world”) by €10.5 billion and the Solidarity and Emergency Aid Reserve (SEAR) by €2.5 billion. This will also provide the necessary resources for the implementation of the New Pact on Migration and Asylum, support Syrian refugees in Türkiye and the region, guarantee further Macro-Financial Assistance in neighbourhood countries and replenish the cushion of the Neighbourhood, Development and International Cooperation Instrument (NDICI-GE).
  • To cater for the impact of the unprecedented increase of interest rates on NextGenerationEU funding costs in the most efficient way, the Commission proposes a new special instrument over and above the ceilings of the Multiannual Financial Framework. The new instrument will cover exclusively the additional costs relative to those already included in the financial programming.
  • To meet the Commission’s legal duties and to deliver on the additional responsibilities assigned by the co-legislators to the Union, it is necessary to raise the ceiling of Heading 7 by €1.9 billion.
  • To equip the Union to respond to unforeseen needs over the remainder of the Multiannual Financial Framework, the Flexibility Instrument should be increased by €3 billion for the period 2024-2027.
Does this mean additional financing by EU Member States?

The MFF was decided back in 2020, since then, the world has drastically changed. The economic and social effects from Russia’s war are tremendous, with impacts, among others, on energy costs, consumer prices, interest rates, supply chain disruptions. These effects are felt in Ukraine, in the Union as well as in the rest of the world including our close neighbours.

While the multiannual nature of the EU budget provides stability and predictability, it has limited capacity to respond to major unexpected events, and its flexibilities are being depleted as extensive use of redeployments and reprogramming, on top of existing budgetary flexibilities, has been necessary to address the unforeseen challenges. Faced with this situation, the Commission sees no alternative to ensure that the EU can deliver on all its objectives, especially the most urgent ones, until the end of 2027, than to propose a targeted revision of the Multiannual Financial Framework 2021 – 2027.

How is the Commission proposing to support Ukraine?

The Commission is proposing the creation of an integrated and flexible instrument, the Ukraine Facility, with an overall capacity of €50 billion over 2024-2027. The amounts will be defined on an annual basis depending on Ukraine’s evolving needs and implementation capacities.

Underpinned by a Ukraine Plan to be presented by the Government of Ukraine, the Ukraine Facility will support Ukraine’s efforts to sustain macro-financial stability, promote recovery as well as modernise the country whilst implementing key reforms on its EU accession track.

The financing will be provided in the form of loans and non-repayable support (‘grants’ and guarantees), with the actual distribution being determined annually. Thanks to this construction the instrument will provide certainty for a multiannual commitment and flexibility to adjust annually to evolving needs on the ground.

This translates into stable and predictable funding under a framework that ensures the protection of the EU budget and the sustainability of the Union’s and Ukraine’s finances.

The loan support will be financed by borrowing on the financial markets and guarantees through the headroom of the EU budget. The headroom is the difference between the own resources ceiling (i.e. the maximum amount of resources that the Commission can ask Member States to contribute in a given year) and the funds that the Commission actually needs to cover the expenses foreseen by the budget. The non-repayable support will be financed through the EU annual budget under a new special instrument, the Ukraine Reserve, with resources over and above the MFF expenditure ceilings.

What are the key principles of the financial architecture for support to Ukraine?

A dedicated maximum amount for 2024-2027will be established for both loans and non-repayable support in form of grants and guarantees.

  • The funds for the grants and guarantees will be mobilised annually via a new proposed Special Instrument (Ukraine Reserve) that can finance all pillars of the instrument: Pillar I (Ukrainian plan), Pillar II (guarantees), Pillar III (technical assistance).
  • The loans will be directly guaranteed by headroom, similar to MFA+ and can be used for financing only Pillar I (i.e. the Ukrainian plan).

The level of support would be calibrated annually, including the share of loans and grants. The instrument gives balance between flexibility and predictability according to the evolving needs on the ground given war developments, Ukraine implementation, absorption and debt capacity.

How is the Commission proposing to reinforce competitiveness?

The Commission proposes the creation of STEP to support the EU’s industrial competitiveness through investments in the development and manufacturing of critical forward-looking technologies in the fields of digital and deep tech, clean tech and biotech.

Across programmes, the Commission proposes a ‘Sovereignty seal’ enabling projects eligible under one programme but not fully funded to have better access to funding under other instruments.

To boost the investment capacity dedicated specifically to the priority of promoting European sovereignty, the Commission further proposes to allocate €10 billion.

Finally, the Commission is setting up of a new ‘One-Stop-Shop’ and a Sovereignty Portal to support project promoters access information about EU funding possibilities available at EU and national level. This should reinforce the possibilities for companies seeking to invest in Europe to have rapid and easy answers to funding and regulatory questions to facilitate their investment decision-making.

What exactly is the Commission proposing to respond to global challenges beyond the war in Ukraine?

In view of the increasing number of crises and respective needs, the Commission is proposing to reinforce the EU budget with a view to:

  •  Implement the New Pact on Migration with €2 billion for Heading 4 Migration and Border Management).
  • Deliver on absolute necessities in a context of extraordinary geopolitical tension with €10.5 billion for Heading 6 Neighbourhood and the world.
  • Reinstate the Union’s capacity to respond to crises and natural disasters with €2.5 billion over the period 2024-2027 under the Solidarity and Emergency Aid Reserve.
How will the Commission make sure that the budget is fit to react to future crises?

The EU budget flexibilities and the possibilities for redeployments and reprioritisations are severely diminished after a few years of implementation. The MFF needs to be revised to cope with future crises and unexpected needs.

For this reason, the Commission proposes a reinforcement: the Solidarity and Emergency Aid Reserve (SEAR) and the Flexibility instrument.

The SEAR can help non-EU countries with emerging needs stemming from conflicts, the global refugee crisis. Its resources can be used also to help tackling emergency situations due to major natural disasters or public health crises in Member States and accession countries. In 2021 and 2022 the requests received were far above the budget availability. As a result, not all needs could be met. A similar situation is expected for 2023. For this reason, the Commission proposes to increase the SEAR by €2.5 billion over the period 2024-2027.

The Flexibility Instrument can top up any programme for unforeseen needs and has been used extensively since 2021. Moreover, 75% of all budgetary margins for the 2021-2027 period have been used or earmarked. Therefore, reinforcing the Flexibility Instrument is necessary in an uncertain and volatile environment. The Commission therefore proposes to increase the Flexibility Instrument by €3 billion for the period 2024-2027.

How does the Commission intend to deal with increasing borrowing costs?

Since the beginning of 2022, due to increasing uncertainty in financial markets and monetary policy tightening to respond to high inflation, bond market rates in the EU and beyond have risen significantly.

The pace of the increase in interest rates for all bond issuers, including the EU, has been one of the steepest witnessed in financial markets in the past decades. Interest rates on 10-year EU-Bonds have increased from 0.09% at the time of the inaugural 10-year NextGenerationEU bond in June 2021 to 3.09% in the most recent issuance in April 2023. Comparable increases have been observed for highly rated euro area sovereign issuers.

The sudden and sharp increase in interest rates has substantial budgetary implications. For the MFF 2021-2027, an amount of €14.9 billion (in current prices) under Heading 2b had been planned for covering the interest payments for NextGenerationEU non-repayable support. This was based on interest rate expectations back in 2020 (when long-term interest rates were historically low) and locked in the funds for the future 7 years.

Given the volatility of interest rates, planning those costs over the long term is prone to large deviations.

Therefore, the Commission proposes to create, for the period 2024-2027 a new special instrument, over and above the ceilings, to coverexclusivelythe funding costs of NextGenerationEU in excess to what is currently planned in the MFF.

Why is there a need to increase expenditure for administration?

The new initiatives on which the EU had to deliver over the last two years came with substantial additional tasks for the European administration, without a corresponding increase in staff. Examples include the Digital Markets Act und Digital Services Act, support to Ukraine, the Health Emergency Preparedness and Response Authority (HERA), Fitfor55, the Carbon Border Adjustment Mechanism (CBAM), REPowerEU. This has pushed the resources of European administration to the limit.

Rising inflation has put extra pressure on administrative resources and the EU’s capacity to fulfil its legal obligations. The Commission has made exceptional efforts to reduce administrative costs and redeployed more than 900 posts internally since 2019. A new building policy, covering the 2022-2030 period, has significantly reduced office space. Drastic cuts have been introduced for missions, meeting and representation costs. While the Commission will continue to work in this direction, the leeway for reallocation is being used up. The current ceilings of heading 7 will not be sufficient to accommodate the actual needs triggered by the inflation and an update is needed.

NEXT STEPS
What is the timeframe for reaching an agreement on the MFF mid-term review?

The negotiations, including the Parliament’s consent, must be concluded before the end of the year to alleviate the current budgetary pressures and release funds in support of Ukraine, migration and external needs, and competitiveness from January 2024.

Timely approval of today’s proposal is of the essence. The Commission counts on the incoming Spanish Presidency of the Council of the European Union to take work in the Council forward in view of a swift compromise immediately after the summer. This compromise could then be endorsed by the European Council in October.

What is the impact of this proposal for the 2024 annual budget?

The Commission presented its proposal for an annual budget for 2024 on 7 June 2023.

The draft budget seeks to provide key funding to the EU’s political priorities, with green and digital spending continuing to be prioritised to make Europe more resilient and fit for the future. However, it does not provide the necessary funding for Ukraine, competitiveness, the new Pact on Migration and Asylum and sustained external challenges and new emergencies.

Today’s proposal gives the EU the ability to act as a global partner, a conscious neighbour and in support of our businesses and citizens.

On the basis of the feedback received by EU Member States in the Council, the Commission stands ready to amend its proposal for a draft budget 2024 to reflect the outcome of the negotiations of today’s MFF revision.

For More Information

EU budget: Commission proposes to reinforce long-term EU budget to face most urgent challenges

Questions and Answers on EU budget: Commission proposes STEP to support European leadership on critical technologies

Press release STEP

STEP web page

Ukraine: Commission proposes to set up a dedicated Facility to support Ukraine’s recovery, reconstruction and modernisation

Factsheet – A New Ukraine Facility

Questions and Answers – A new Ukraine Facility

Legislative texts
Source – EU Commission

EU budget: EU Commission proposes Strategic Technologies for Europe Platform (STEP) to support European leadership on critical technologies

 

Brussels, 20 June 2023

Strengthening the competitiveness of the European economy through the green and digital transformations has been the EU’s strategic goal over the last years. Despite its inbuilt resilience, EU industry is being challenged by high inflation, labour shortages, supply chain disruptions, rising interest rates, and spikes in energy costs and input prices. This is paired with strong, and not always fair competition on the fragmented global market. The EU has already put forward several initiatives to support its industry. The EU now needs a more structural answer to the investment needs of its industries. This will support the uptake and scaling up of development and manufacturing of strategic technologies in the EU, in the fields of digital and deep tech, clean tech and biotech. It will help companies seize the opportunities, build resilience and meet the objectives of the green and digital transitions, thereby strengthening European sovereignty.

Today, the Commission proposes the Strategic Technologies for Europe Platform (‘STEP’). The STEP will reinforce and leverage existing EU instruments to quickly deploy financial support to the benefit of business investments. The STEP will also allow directing existing funding towards technology fields that are crucial for Europe’s leadership, thus contributing to a level playing field for investments throughout the Single Market.

EU Commission President Ursula von der Leyen said:

“The future of the strategic industries should be made in Europe. Today, with STEP, we set the stage to mobilise the necessary funding available across various EU programmes to stimulate investments in critical technologies and make sure companies grow and flourish in the EU. With the existing funding, and an extra €10 billion that we intend to inject, we aim to reach up to €160 billion in investments in the coming years. This will be the precursor to a fully fledged Sovereignty Fund that would be created in the future”.

The STEP will build on existing programmes such as InvestEU, Innovation Fund, Horizon Europe, EU4Health, Digital Europe Programme, European Defence Fund, Recovery and Resilience Facility, and cohesion policy funds.

To boost the investment capacity dedicated specifically to promoting STEP objectives, the Commission further proposes to allocate additional €10 billion to targeted programmes:

  • €3 billion for InvestEU, resulting in €75 billion of investments given the 40% provisioning rate and an average multiplier of 10;
  • €0.5 billion to Horizon Europe, complemented with €2.13 billion of redeployment and use of decommitted amounts, resulting in €13 billion of investments with an average multiplier of 5;
  • €5 billion to the Innovation Fund, resulting in €20 billion of investments given the experience to date under the Innovation Fund;
  • €1.5 billion to the European Defence Fund, which could result in up to €2 billion of investments.

Taken together, the reinforcements of the foregoing four programmes and instruments (InvestEU, European Innovation Council, Innovation Fund, European Defence Fund) can be expected to lead to additional investments in the critical technologies covered by STEP of around EUR 110 billion.

By providing financial incentives in cohesion policy funds in the form of higher pre-financing and co-financing, Member States are encouraged to reprioritise their programmes. Every 5% of reprogramming towards STEP priorities leads to €18.9 billion of resources made available, in addition to €6 billion to be paid out from the Just Transition Fund. The increase of the ceiling under the RRF to use resources for InvestEU products via its national compartments represents an additional flexibility for Member States of €30 billion potentially available for such sovereignty investments.

Altogether, the total estimated amount of new investments through STEP could reach up to €160 billion.

Under the STEP, a Sovereignty Seal and a Sovereignty portal will be created to promote synergies among the existing programmes. The Sovereignty Seal will be awarded to projects contributing to the STEP objectives, provided that the project has been assessed and complies with the minimum quality requirements of a call for proposals under Horizon Europe, the Digital Europe programme, the European Defence Fund, the EU4Health programme, or the Innovation Fund. In addition, a Sovereignty portal will serve as a one-stop-shop to help project promoters and companies seeking funds to find the relevant information about funding opportunities under EU budget programmes for STEP investments.

INTERVENTION FIELDS

STEP will support the development or manufacturing in the Union of critical technologies in the following fields:

  • deep and digital technologies, such as microelectronics, high-performance computing, quantum computing, cloud computing, edge computing, artificial intelligence, cybersecurity, robotics, 5G and advanced connectivity, and virtual realities, including actions related to deep and digital technologies for the development of defence and aerospace applications;
  • clean technologies, such as renewable energy; electricity and heat storage; heat pumps; electricity grid; renewable fuels of non-biological origin; sustainable alternative fuels; electrolysers and fuel cells; carbon capture, utilisation and storage; energy efficiency; hydrogen; smart energy solutions; technologies vital to sustainability such as water purification and desalination; advanced materials such as nanomaterials, composites and future clean construction materials; and technologies for the sustainable extraction and processing of critical raw materials;
  • biotechnologies, such as biomolecules and its applications, pharmaceuticals, medical technologies and crop biotechnology, and biomanufacturing.

The STEP will also help safeguarding and strengthening the respective value chains, steer investments in related critical raw materials, and address shortages of labour and skills in those sectors.

NEXT STEPS

Once the STEP is formally adopted by the European Parliament and the Council, it will be possible to proceed with a swift implementation. Different timelines may apply, depending on the programmes of the EU budget and their specific characteristics.

While the STEP relies on the reprogramming and reinforcement of existing programmes for supporting strategic investments, it is also an important testing ground for further steps towards a European Sovereignty Fund.

Background

The EU has already put forward several initiatives to support its industry. The Green Deal Industrial Plan is the EU’s roadmap to secure the long-term competitiveness of Europe’s industry and support the fast transition to climate neutrality. The Net-Zero Industry Act represents its regulatory arm. The act seeks to ensure a simpler and fast-track permitting, promoting European strategic projects, and developing standards to support the scale-up of technologies across the Single Market. It is complemented by the Critical Raw Materials Act, to ensure sufficient access to those materials, like rare earths, which are vital for manufacturing technologies that are key for the twin transition. Another key instrument to support the competitiveness of the European industry is the European Chips Act, which seeks to bolster Europe’s resilience in semiconductor technologies and applications, and boost the EU’s share of the global microchips market.

Moreover, the Commission has adopted a new Temporary Crisis and Transition Framework for State aid, which gives Member States more flexibility to design and implement support measures in sectors that are key for the transition to climate neutrality. Member States are also currently amending their national recovery and resilience plans to include REPowerEU Chapters, which is a crucial opportunity to provide immediate support to companies and boost their competitiveness, without creating unnecessary strategic dependencies.

The EU also provides support to research and innovatoin, notably through Horizon Europe. And with the European Innovation Agenda, the EU has sought to position Europe at the forefront of the new wave of deep tech innovation and start-ups.

For More Information

Questions and Answers on EU budget: Commission proposes STEP to support European leadership on critical technologies

Strategic Technologies for Europe Platform

Press release on EU budget: Commission proposes to reinforce long-term EU budget to face most urgent challenges

Question and Answers: Commission acts to reinforce long-term EU budget to face most urgent challenges

Quotes

STEP is one more example of how our EU budget helps support key EU priorities. It makes best use of existing funds, some of which get strategic reinforcement, to the benefit of business competitiveness in Europe.

Johannes Hahn, Commissioner for Budget and Administration – 20/06/2023
Source – EU Commission

EU budget: EU Commission puts forward an adjusted package for the next generation of own resources

 

Brussels, 20 June 2023
As committed during the negotiations on the long-term EU budget 2021-2027, the European Commission has today completed its proposal for a next generation of own resources. Today’s package includes a new temporary statistical own resource based on company profits. Following the political agreement on the Fit For 55 package, which seeks to ensure EU policies contribute to the climate neutrality of our continent, the Commission  also proposes to adjust the own resources proposals based on the Emissions Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM) compared to the original proposals from December 2021.

Today’s proposal completes and updates the package for the next generation of own resources to the budget put forward back in December 2021. Three sources of revenue were proposed back then: one based on revenues from emissions trading (ETS), one drawing on the resources generated by the proposed EU carbon border adjustment mechanism, and one based on the share of residual profits from multinationals that will be re-allocated to EU Member States under the recent OECD/G20 agreement on a re-allocation of taxing rights (“Pillar One”). This is completed today by a statistical own resource linked to the corporate sector. Once in force, this basket of new own resources will ensure an adequate long-term financing of the budget including the repayment of NextGenerationEU.

European Commission President von der Leyen said:

“Today’s proposal completes our proposal for stable new own resources to finance the massive NextGenerationEU investments in EU recovery and resilience with four new own resources for the EU budget. Member States now have all the elements to come to a quick agreement and secure the funding for the EU budget.”

New temporary statistical based own resource on company profits

The European Parliament, the Council and the Commission jointly agreed in 2020 that an own resource linked to the corporate sector should be proposed. The new statistical own resource based on company profits will be temporary, to be replaced by a possible contribution from Business in Europe: Framework for Income Taxation (BEFIT), once proposed and unanimously agreed by all Member States.

In the meantime, the own resource put forward today will be calculated as 0.5% of the notional EU company profit base, an indicator calculated by Eurostat on the basis of the national accounts statistics.

It is not a tax on companies, nor does it increase companies’ compliance costs. It will be a national contribution paid by Member States based on the gross operating surplus for the sectors of financial and non-financial corporations, which would help to balance the basket of own resources and further diversify the revenue sources of the EU budget.

The statistical own resource on company profits would provide revenues as of 2024 of about €16 billion (2018 prices) per year.

Adjustment of the ETS own resource

Following the increase in the carbon price to about € 80 per tonne of CO2 in 2022 (from €55 in 2021), Member States revenues from the Emissions Trading System (ETS) have doubled in the course of two years to almost €30 billion in 2022. Prices are expected to remain well above €55 per tonne of CO2 in the years to come. As compared to its original proposal of December 2021, the Commission proposes to increase the call rate for the ETS-based own resource to 30% from all revenues generated by EU emissions trading, up from 25% originally proposed. This is expected to generate EU budget revenue of about €7 billion (in 2018 prices) annually from 2024 onwards. This is expected to increase to about €19 billion per year from 2028, when revenues from the new ETS will also enter into the EU budget. At the same time, annual revenues from ETS allocated to Member States could go above €46 billion, thus exceeding by far what was expected when the Fit for 55 proposal was tabled.

Adjustment of the CBAM

In light of the Fit for 55 package, the Commission is also proposing a technical adjustment to the control framework of the Carbon Border Adjustment Mechanism (CBAM), to align its original proposal for an own resource with the adopted text. This source of revenue is expected to generate about €1.5 billion per year as of 2028 for the EU budget.

Next steps

Today’s proposal will feed into the negotiations with the Member States in the Council on a next generation of own resources of the budget.

The legislative discussions on the first proposal of December 2021 have made limited progress. While a second proposal for new own resources was originally due by 2024, the Commission decided to put it forward earlier, so that Member States have all the elements to engage in the negotiation in the framework of the agreed roadmap. The Commission calls on the Council to accelerate these negotiations.

Background

The EU budget is currently being financed via four own resources. Introducing new sources of revenue has been a long-standing ambition for EU-policy makers, as it would create the following benefits:

  • Reduce the weight of the Gross National Income (GNI)-based own resource in the EU budget;
  • Reform the own resources system to support EU priorities, by designing new own resources that bring also additional benefits alongside the stream of fiscal income;
  • Introduce more diversified and resilient types of own resources, directly related to EU competences, objectives and priorities.
For More Information

Q&A

Factsheet

Legal acts

Revenue | European Commission (europa.eu)

The next generation of EU own resources (europa.eu)

Own resources (Europa.eu)

Quotes

With today’s proposal, the full basket of own resources is on the table. The ball is now in the court of Member States, which should take their responsibility to ensure that the EU budget is financed in the years to come in line with our political priorities.

Johannes Hahn, Commissioner for Budget and Administration – 20/06/2023
Source – EU Commission

Q&A: An adjusted package for the next generation of own resources

 

Brussels, 20 June 2023

How does the own resources system work today?

There are currently four own resources for the EU budget:

  • Customs duties, which are levied on imports, collected at the external borders of the EU, and go directly to the EU budget. Member States retain 25% of the amount as collection costs.
  • The Value Added Tax own resource, which has been simplified as of 2021. A uniform call rate of 0.3% applies to the value added tax bases of all Member States.
  • The statistical-based own resource based on non-recycled plastic packaging waste is the main novelty of the previous Own Resources Decision of 2020. Member States contribute €0.80 per kilogramme of their plastics packaging waste that is not recycled. A correction is applied to contributions of Member States with a GNI per capita in 2017 below the EU average.
  • The Gross National Income (GNI) own resource remains the main source for financing the EU budget. All Member States contribute according to their share in the EU27 GNI. A lump sum reduction is applicable to Austria, Denmark, Germany, the Netherlands and Sweden.

These four own resources account for more than 90% of revenues. Other sources of revenues include taxes and other deductions from EU staff salaries, contributions from non-EU countries to certain programmes, interest on late payments and fines.

Why is the Commission proposing a new own resource package?

As part of the 2020 agreement on the long-term EU budget and NextGenerationEU, the European Parliament, EU Member States in the Council and the Commission agreed on a roadmap to introduce new own resources to the budget to support the reimbursement of the NextGeneration borrowing.

On that basis, the Commission committed to make two sets of proposals for new sources of revenue to the budget. The first proposal was presented in December 2021 and included proposals based on Emissions Trading System (ETS), Carbon Border Adjustment Mechanism (CBAM), and the OECD Pillar One agreement. Since then, little progress has been achieved. In an attempt to speed up the negotiations, the Commission has today adjusted and complemented its proposal, ahead of the initially planned date of 2024.

How is the final basket of proposed own resources calibrated?

In view of today’s adjustments to the agreement on elements of Fit for 55, the package of own resources to be negotiated in the Council will consist of:

  • An own resource based on revenues from emissions trading (ETS): it applies a 30% call rate on the revenues from the auction of ETS allowances (and the market value of allowances that Member States decide not to auction). A solidarity mechanism will apply to avoid that Member States contribute disproportionally as compared to their relative income.
  • An own resource generated by the EU carbon border adjustment mechanism (CBAM), with a simplified control system compared to the proposal of December 2021. 75% of the revenues from the mechanism will be allocated to the EU budget.
  • A temporary statistical based own resource on company profits, until the establishment of an own resource based on an upcoming initiative to simplify corporate tax rules and tax compliance: Business in Europe: Framework for Income Taxation (BEFIT). This temporary own resource comes with a 0.5% call rate to the gross operating surplus statistics recorded for the sector of financial and non-financial corporations of each Member States under the European system of accounts (ESA). This contribution is by no means a tax on companies and will not increase their compliance costs.

In addition, the own resource, proposed in December 2021, based on the share of residual profits from multinationals that will be re-allocated to EU Member States under the OECD/G20 agreement on a re-allocation of taxing rights (“Pillar One”) is maintained.

How much revenue will each of these elements deliver?

Based ona carbon price assumption of €80 per tonne, the ETS own resource will generate about €19 billion (2018 prices) per year at cruising speed, when the revenues from the new ETS enter into the EU budget. It is estimated that the CBAM own resource will generate about €1.5 billion (2018 prices) per year as of 2028. The statistical-based own resource on company profits would provide revenues of about €16 billion (2018 prices) per year as of 2024.

Under current assumptions, this package is expected to deliver collectively on average €36 billion (2018 prices) per year as of 2028.

How will the new own resources contribute to the repayment of NextGenerationEU?

The repayment of the borrowing for NextGenerationEU will be spread over more than three decades, to be concluded by 2058.

Repayments will be financed through the general budget in line with the universality principle of the EU budget.

The EU will under any circumstances honour its obligations to repay NextGenerationEU borrowing including interest and the repayment of the principal.

However, this repayment should not lead to an undue reduction in programme expenditure or investment instruments under the MFF. It is also desirable to mitigate the increases in the GNI-based own resource for the Member States. Finding an agreement on the new own resources proposed today will facilitate discussions on the future long-term budgets and focus minds on strategic priorities, rather than the level of national contributions.

Is the Commission proposing EU taxes with this package?

The Commission does not propose EU taxes with this updated package. The Emissions Trading System and the Carbon Border Adjustment Mechanism are market-based instruments. The purpose of the revision of the Own Resource Decision is to allocate a share of the revenues generated by these instruments to the EU budget. Similarly, the temporary statistical-based own resource on company profits is a statistical-based own resource. The contribution due by Member States will be proportional to statistics on gross operating surplus. Companies will not be affected.

How will the EU collect the own resources mentioned in the package?
As regards the ETS-based own resource:

The Commission proposes a mechanism in which the largest part of the ETS-based own resource is collected and made directly available to the EU budget on behalf of Member States by the auction platform. The revenues are therefore directly transferred to the EU budget without being channeled through Member States’ accounts. The auction platform is a vehicle under ETS legislation operating under the responsibility and on behalf of Member States.

Member States that exercise their right not to auction some of their allowances are required to contribute a proportional amount. The ETS contributions are adjusted with the solidarity adjustment mechanism, requiring minimum contributions or capping them at a maximum contribution.

As regards the CBAM-based own resource:

The Commission proposes a mechanism where CBAM revenue is collected by the competent authority of the Member State where the declarant is located. Member States retain 25% of the CBAM revenues. The remaining 75% are made available to the EU budget by Member States once per year (in February) following the Commission’s call for funds.

As regards the temporary statistical own resource based on company profits:

This own resource entails applying a 0.5% call rate to the gross operating surplus for the sectors of financial and non-financial corporations recorded for each Member State under the European System of Accounts (ESA). Member States make this own resource available to the EU budget monthly following the Commission’s call for funds.

As regards the own resource based on reallocated profits (OECD Pillar 1), similar arrangements have been proposed. This own resource consists in applying a uniform call rate of 15% to the share of residual profits of the multinational enterprises reallocated to Member States and declared to the Commission. The implementation of the OECD/G20 Pillar 1 agreement remains an essential priority. Substantive progress has been made following the October 2021 agreement and the Commission will continue to promote such efforts. However, the multilateral convention has not yet been signed and ratified, which means that it cannot yet enter into force.

How do the proposals today relate to the Fit for 55 package?

In December 2022, the EU agreed on the Fit for 55 package, aiming at reducing greenhouse gas emissions across the EU with the objective of reaching climate neutrality by 2050.

The original proposal for new sources of revenue to the EU budget was closely linked to the proposal for the Fit for 55 package. It therefore needs to be aligned with the final text, also taking into account new market developments considering the increased carbon prices.

More concretely, the updates concern:

  • The contribution of the new ETS on building, road transport and other sectors will apply as from 2028.
  • The call rate for the ETS-based own resource was adjusted from 25% to 30% to account for carbon market developments. Since July 2021, when the Commission presented the legislative proposals, the carbon price has increased from approximately €55 per tonne of CO2 to €80 per tonne of CO2. With a 30% call rate, the revenues for Member States will still be higher than expected when proposing the Fit For 55 proposal, with on average €46 billion per year as from 2028.
  • Following the agreement on a new governance model for the CBAM, the Commission will need to assist Member States in the implementation of CBAM, including some control tasks. Therefore, the control to be performed for the own resource should be lighter.
Statistical based own resource on company profits
How will the statistical own resource based on company profits work?

This new statistics-based own resource would be calculated on the basis of the gross operating surplus for the sectors of financial and non-financial corporations. This is a statistical indicator of profits for companies based in the EU according to the European System of Accounts 2010, verified and published by Eurostat.

The own resource would then equal 0.5% of the gross operating surplus.

Why are you proposing a “temporary” own resource rather than a permanent one?

The statistical based own resource on company profits aims at ensuring a contribution from the corporate sector before an agreement on the forthcoming initiative on Business in Europe: Framework for Income Taxation (BEFIT) is reached and a respective own resource is proposed and approved.

Given the required unanimity, also on tax proposals, an agreement on the two pieces of legislation is expected to take some time, which is incompatible with the need to speed up the negotiations on new sources of revenue to the budget.

When will the new own resources apply? 

The Commission proposes that the contribution from the existing ETS, covering stationary installations, maritime and aviation and from the statistical based own resource on company profit applies as of 2024. The contribution from CBAM and the new ETS on building, road transport and other sectors will apply as of 1 January 2028.

The own resource decision will enter into force once agreed by Member States in the Council, after seeking the opinion of the European Parliament, and ratified by Member States in accordance with their respective constitutional requirements.

What are the legal provisions under which the package is negotiated and agreed?

Any own resource proposal is being negotiated in the Council according to the special legislative procedure set in Article 311 of the Treaty on the Functioning of the European Union.

This means that the adoption requires a unanimous agreement by all EU Member States in the Council following a consultation of the European Parliament. In addition, EU countries have to approve the agreement at national level, in accordance with their respective constitutional requirements.

What was the analytical basis for today’s proposal?

Before putting forward today’s package, the Commission carried out an analysis of all available options for new sources of revenue to the budget.

This analysis of new own resource candidates is available in the Staff Working Document (SWD) accompanying today’s proposal. The analysis assesses the potential new own resources according to three criteria – revenue potential, simplicity, and fast mobilisation of revenues.

Today’s package presents the optimal mix of revenue on the basis of this analysis, in view of the need for a speedy mobilisation of new sources of revenue to the budget.

For More Information

Press release

Factsheet

Legal acts

Revenue | European Commission (europa.eu)

The next generation of EU own resources (europa.eu)

Own resources (Europa.eu)

Source – EU Commission

 

 

 

 

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