1. Reforming the EU budget- a practical approach Jorge Núñez Ferrer EU Budget Review: Benefit for Europe and Lithuania 12th October 2007 Presidential Palace Hall of Columns Vilnius

2. 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

3. 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

4. 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

5. 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

6. 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?

7. 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

8. 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)

9. 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)