01 Feb 2018   |   Viewpoint

The Big Idea: Fund future EU research and education programmes by tackling tax avoidance at a European level

It’s now a year since the European Commission published the Monti report of the ‘High Level Group on Own Resources’ (code for an EU income stream independent of member state contributions), putting forward recommendations for the reform of the EU budget. The subsequent ‘Reflections Paper on the Future of EU Finances’ white paper published in June 2017, drew upon the Monti report to develop five possible scenarios for future EU finances.

With the preparatory work on the next Multiannual Financial Framework (MFF post-2020) now underway, it is timely to highlight some ‘Big Ideas’ in the Monti report which, although taken up in the white paper’s five scenarios, do not seem to have been given much attention in the opening debates this year on the future EU budget.  

Scenarios 4 and 5 in the white paper envisage the need for a ‘Radical Redesign’ and ‘Doing Much More Together’ on the future of EU finances. Within these two scenarios new sources of European income are foreseen that would assume a large proportion of EU budget and contribute to achieving policy objectives.

The “Big Idea” is that these new resources come from European fiscal policy instruments, including a financial transaction tax and a common consolidated corporation tax base.

This is not a new idea of course, because such taxes have been advocated by many academics, policy makers and NGOs. But perhaps the current political climate of growing citizen distrust in the ability of government institutions to meet their needs and concerns brings this “Big Idea” closer to the mainstream political agenda.

Changing public mood

What was new in the white paper Scenarios 4 and 5 was that such taxes should provide revenue to focus on EU “high value priority policies” such as research and innovation, employment, skills and social inclusion.  

The European Commission is increasingly showing signs it senses the changing public mood and the need to rebuild trust in democratic institutions. In his speech at the recent conference, ‘Shaping our Future: Designing the Next Multiannual Financial Framework’ held in Brussels on 8-9th January 2018, Gunther Oettinger, Commissioner for Budget and Human Resources, made the case for giving the EU budget headings more meaning by making them address public concerns.

Interestingly, he chose to offer one new suggestion for a budget heading, “Future Innovation and Youth” which would cover all EU Research and Innovation, Education and skills programmes (FP9, ERASMUS+ etc).

Why not combine this proposed new budget heading suggested by Oettinger with the new “own resources” from fiscal measures fighting tax avoidance as advocated in the Monti report? Such a “Big Idea” policy shift would help safeguard and indeed strengthen the necessary tax base for the public goods of research, innovation and education on which the economy depends for new talent and ideas.

Tax avoidance as a major threat to the European tax base is constantly in the media headlines today and fuels public discontent at the perceived lack of fairness in the tax system, with some multinationals and wealthy individuals able to move their profits at will across the globe and locating them in most favourable tax venues. It is impossible for individual governments to grasp the full picture of such tax avoidance across the EU, although some recent steps in cooperation between tax authorities are an encouraging sign.

Focus on revenue raising

A first step in piloting this “Big Idea” could be for the European Commission to launch a data initiative that aims to create systems for better monitoring cross-border commerce and taxation by large companies. Foresight work supported by the European Commission has already proposed such initiatives, in particular the 2015 Expert Group report on ‘The Knowledge Future: Intelligent Policy Choices for Europe 2050’ which advocated the tightening of the links between fiscal policy and policy for research, innovation and education.

What is the European Commission waiting for in not launching such pilot projects?

A further next step might be for EU-FP9 supported exploration of fiscal legislation options for European level tax regimes, focussed on revenue raising from large company cross-border commerce and profits earned in EU member states, and tax avoidance practices within the jurisdictions of member states (that is, tax havens). The medium term aim of such modelling would be to inform the implementation of feasible tax regimes constituting an important component of the EU’s future “own resources” as supplementary funding to member state contributions, and perhaps in the long term replacing such contributions.

The latter outcome could have the additional benefit of reducing “juste retour” attitudes on the part of member states towards EU research, innovation and education programmes, and perhaps leading them to make further investment in such public expenditure at the national and regional level in order to strengthen their competitiveness.

Earmarking revenues from such new tax regimes for enhancing the public goods of European research and education programmes would be a future-orientated investment in the talents of the next generation of European citizens.

A “Big Idea” initiative of this kind, most crucially, could have a valuable impact in enhancing public trust in European institutions and their ability to tackle the major problem of tax avoidance, helping to reverse the advance of Euroscepticism.

Dr John H Smith is a European science policy consultant based in Strasbourg, and former Deputy Secretary-General for Research and Innovation, European University Association (EUA), Brussels.