Plastics tax, carbon-trading cash to cover EU’s Brexit gap, officials say

BRUSSELS (Reuters) – The President of the Heads of State or Government of the European Union proposed on Friday that the gap left by the UK in the bloc's next long-term budget would be increased with revenue from a new tax on plastics and carbon emissions trading funds to fill.

Flags of the European Union flutter in front of the EU Commission headquarters in Brussels, Belgium, May 2, 2018. REUTERS / Francois Lenoir

At a summit on February 20, Charles Michel presented a so-called "negotiation box", which will form the basis for an intensive horse trade between 27 EU heads of state and government, and proposed a budget of 1.074% of the EU's gross national income for 2021-27 or € 1.095 trillion (£ 910.48 billion), a quarter of which is to help make the EU neutral on CO2 emissions by 2050.

Britain's exit from the block on January 31 left a gap of more than 10 billion euros per year in EU funding as it made a leading contribution to the budget after Germany.

However, EU officials said plastic tax revenue and money from the expanded carbon trading system, which would also include the transport sector, could generate 14 to 15 billion euros a year – more than enough to fill the gap.

The tax on plastics would be 0.8 euros per kilogram of non-recycled plastic packaging waste. The carbon money would come from revenue generated by the EU Emissions Trading Scheme (ETS) that would exceed the average annual revenue per country generated from allowances auctioned in 2016-18.

The EU is also considering other taxes – on the digital economy, flying, financial transactions and high-carbon products imported into the EU – as additional sources of income.

However, the overall budget is still too high for a group of the largest net contributors, led by Germany, the Netherlands, Austria, Sweden and Denmark. These richer countries don't want an amount above 1.0% and criticized the value of 1.07% when it was presented by the Finnish EU Presidency last year.

"It is difficult to see how this proposal will form the basis for a compromise," said an EU diplomat from the countries with net contributors to Michel's proposal.

“The ceiling is too high, the modernization too little. There is still a need for permanent corrections to ensure fair burden sharing, ”said the diplomat.

However, senior EU officials involved in the preparation of the summit said that 1.074% of GNI was at the heart of the positions of the 27 governments Michel had consulted in the past two weeks and were the best place to start a compromise.

To alleviate the concerns of net contributors who receive discounts on premiums to be abolished by net recipients, Michel proposed general corrections for Denmark, Germany, the Netherlands, Austria and Sweden.

Michel said that EU funding should be made conditional on government compliance with the rule of law – a point that many of the net contributors insisted on putting pressure on Poles and Hungarians accused of violating democratic controls and considerations to have.

His proposal provides for a means of balancing living conditions in the 27 EU countries at 35% of the total, just as in the 2014-2020 budget.

But it cuts support for farmers, a point that is often criticized for maintaining an outdated economic model, from 36% to 30% and increases internal market, innovation and digital economy spending from 11.2% in the past 7 Years to 13.7%.

There is also an increase in defense spending and the exercise of EU influence on the world. EU administration funds will increase.

Reporting by Jan Strupczewski; additional reporting by Gabriela Baczynska; Edited by Edmund Blair and Toby Chopra

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