Reform plan focuses on UK rebate

Date: 04/03/1999

By Tim Jones

GERMANY and the Netherlands could cut their excessive net payments to the EU budget by slashing their contributions to the UK's controversial €3-billion annual rebate, according to European Commission President Jacques Santer.

In a new proposal designed to break the deadlock over the EU's 2000-06 budget plans, Santer is offering the two biggest paymaster countries a way of cutting their annual Union dues by hundreds of millions of euro.

Yet at the same time, the British government could hang on to the politically charged budget rebate which it won 15 years ago in compensation for its unusually high consumption-related payments to the EU and modest receipts from the Common Agricultural Policy.

Every year, the UK treasury is refunded 66% of the difference between its gross contribution and receipts, and the cost is shared out among the other 14 member states according to the size of the value added tax payments they make to the budget. Taking account of its already heavy contribution to the budget, Germany pays only two-thirds of its normal share into the rebate pool.

Santer's proposal, which he outlined to EU foreign ministers and then later to heads of government at last week's Bonn summit, would extend this cut-rate contribution to the Dutch as well as the Swedish and Austrian governments.

"The great advantage of this idea is that you can introduce modulations to take account of a particular country's needs," said a senior EU official. For example, Germany's contribution to the rebate could be cut from 66% to 50% or even 25%, with the same rate given to the Netherlands, while Austria or Sweden would stay at 66% or above.

Diplomats estimate that such a move alone could yield as much as €100 million to Germany and €70 million to the Netherlands annually over the seven-year period covered by the Commission's Agenda 2000 package of reforms to the EU's spending programmes.

Advocates of this approach calculate that the Santer plan, if combined with a real-terms freeze in the overall annual budget of €85 billion, could yield savings worth close to €2 billion for Germany and €600 million for the Netherlands over seven years.

Officials admit that the political drawback to the plan is that much of the extra cost would have to be borne by France and Italy, and it would require a revision to the rules governing the EU's revenue streams which would have to be negotiated and ratified by all 15 governments and parliaments.

Nevertheless, Commissioners hope this less aggressive approach to the British rebate will persuade London to soften its hardline stance on future use of the refund. When he met a delegation of British parliamentarians this week, Budget Commissioner Erkki Liikanen acknowledged the continued justification for a rebate but called on the UK to agree two significant changes.

Firstly, London should exclude the €59 billion earmarked to pay for enlarging the Union to the East from its rebate calculations. Secondly, if the EU manages to cut farm subsidies and regional aid or switches its revenue base from consumption-related payments to contributions based on national income, Santer and Liikanen want the British to forego these 'windfall gains' in their annual rebate.

Pressure is growing on UK Prime Minister Tony Blair to agree that the justification for the rebate should be reassessed halfway through the Agenda 2000 budget period in 2003.