This week, the European Parliament has been discussing the details of a recovery plan following the Covid-19 Pandemic. The EU is preparing massive investments to support people and businesses as Europe battles a deep economic recession. So, what exactly does this mean for the people of Ireland?
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The impact of Covid-19 has been felt globally through the loss of businesses, jobs, and our normal way of living. The social and economic fabrics of our societies have been disrupted, and Europe is now facing an extreme economic recession that could continue to affect the lives of millions for many years to come.
Ursula von der Leyen, president of the European Commission, claimed their meeting was a defining moment for the future generations of Europeans.
“What started as a virus so small your eyes couldn’t see it, has become an economic crisis so big that you simply cannot miss it,” she says. “Our unique model, built over 70 years ago, is being challenged like never before”.
Von der Leyen proposed to conjoin The EU’s long-term budget with NextGenerationEU, which is a temporary instrument designed to boost the recovery.
The European Commission, the European Parliament, and EU leaders have agreed on this stimulus package, which will be the biggest ever financed through the EU budget with a total of €1.8 trillion. The rebuilding of a Post-Covid Europe will see investments being made for the foundations of a greener, more digital, and more resilient Union.
The aim of the long-term budget is to increase flexibility mechanisms and implement a budget suitable for today’s realities, but also for tomorrow’s uncertainties.
These mechanisms include a series of investments agreed by the European Council on 21 July 2020:
- European Globalisation Adjustment Fund. This fund will see an annual investment of €0.186 billion. Its purpose is to provide support for the reintegration in the labour market. Any person who has lost their job as a result of unexpected events, such as through a financial or economic crisis, will be supported by their government.
- Solidarity and Emergency Aid Reserve: This fund will see an annual investment of €1.2 billion. The Reserve reassures financial support from the EU where needs arise (e.g. emergency after major disasters). 35% of the investments will be preserved in light of the increasing humanitarian needs.
- Brexit Adjustment Reserve: With an overall size of €5 billion, it is aimed to counter adverse consequences in Member States and sectors that are worst affected.
HOW WILL THE EU PARLIAMENT ENSURE THAT THE EU BUDGET IS WELL-SPENT AND GOES TO WHERE THE NEEDS ARE?
The EU Parlament states that the budget already has a sound system in place, which assures the EU budget is well-spent in line with the financial rules. They claim that every project financed by the EU also generates added value. The Commission will continue to rely on this system in the future.
However, they have also added two additional elements into the EU budget protection plan:
- A conditionality mechanism which ensures, for the first time, the EU funding will be protected against generalised deficiencies in the area by the law.
- An integrated information and monitoring system, which gathers and compares information on the final beneficiaries of EU funding, with the system ensuring efficient checks on conflicts of interest, irregularities, issues of double funding and criminal misuse of funds.
Finally, the Commission will continue to cooperate with the European Anti-Fraud Office (OLAF) and the European Public Prosecutor’s Office (EPPO), which will keep exercising their control and investigation powers in relation to the EU budget.
ELEMENTS OF THE AGREEMENT
More than 50% of the Stimulus Package is set to support modernisation through:
- Research and innovation via Horizon Europe, which is a €100 billion programme based on implementing missions in key areas of research and innovation through European partnerships and international cooperation.
- Fair climate and digital transitions via the Just Transition Fund and the Digital Europe Programme. The Just Transition Fund was launched on 29 June, 2020. lt provides technical and advisory support for public and private stakeholders in coal and other carbon-intensive regions. The Digital Europe Programme is set to boost investments in supercomputing, artificial intelligence, cybersecurity, and advanced digital skills. Its goal is to ensure a wide use of digital technologies across the economy and society.
- Preparedness, recovery and resilience, via the Recovery and Resilience Facility, rescEU and a new health programme, EU4 Health, which will focus on larger investments in healthcare systems, medical and healthcare staff, and patients in Europe.
- The package also pays attention to modernising traditional policies such as cohesion and the common agricultural policy. They hope to maximise their contribution to the Union’s priorities, biodiversity protection, and gender equality. The European Agricultural Fund is allocating Ireland €2,250.4 million.
NEXT GENERATION EU
NextGenerationEU is a package of €750 billion and a temporary solution to help repair the immediate economic and social damage inflicted by the coronavirus pandemic.
- The Recovery and Resilience Facility: the centrepiece of NextGenerationEU with €672.5 billion in loans and grants available to support reforms and investments undertaken by EU countries.
Member States are currently working on their own recovery plans and will be able to access the funds under the Recovery and Resilience Facility. In 2021-2022, the Recovery and Resilience Facility is set to allocate Ireland €853 million and a further €420 million in 2023.
- Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU): NextGenerationEU also includes €47.5 billion for REACT-EU.
Ireland received €84 million in 2018 and is set to receive a further €89 million in 2021 from react EU. It is a new initiative that continues and extends the crisis response and crisis repair measures to deal with the effects of the Coronavirus pandemic.
FINANCING THE EU LONG-TERM BUDGET & NEXTGENERATIONEU
The EU long-term budget will continue to be financed through the well-known revenue sources of the EU budget, such as customs duties, contributions from the Member States based on value added tax (VAT), and contributions based on gross national income (GNI)
As of 1 January 2021, the EU has introduced a non-recycled plastic packaging waste tax as a new source of revenue for the EU budget. To finance the recovery, the EU will borrow on the markets at more favourable rates.
ROADMAP FOR NEW SOURCES OF REVENUE TO HELP REPAY BORROWING
The Commission will put forward proposals by June 2021 on new sources of revenue that will help to repay borrowed money.
They are planning to introduce a carbon border adjustment, which means the price of imports would reflect their carbon content. The goal is to ensure that the EU’s green objectives are not undermined and companies are not relocating to countries with less ambitious climate policies.
There are plans to introduce a digital levy that applies to businesses, which provide a social media service, search engine or an online marketplace. For example, Netflix and Amazon.
The EU Emissions Trading System is set to be another important source of revenue. It’s goal is to help EU Member States achieve their commitments to limit or reduce greenhouse gas emissions in a cost-effective way.
By June 2024, the Commission will propose new sources of revenue. They are planning to introduce a Financial Transaction Tax, which is a tax on buying and selling a stock, bond, or other financial contract like options and derivatives.
The EU is planning a financial contribution linked to the corporate sector, which has a significant impact on the real economy. Financial recessions are both deeper and longer-lasting than normal recessions and the EU believes it is important to support the corporate sector financially to avoid these recessions.
A new common corporate tax base is also going to be introduced. The CCCTB is a modern, fair and competitive corporate tax framework for the EU. It is set to improve the Single Market for businesses, reduce red tape (conformity to formal rules or standards which are claimed to be excessive, rigid or redundant), and cut compliance costs for companies in the Single Market.
As part of the European Union, Ireland is on its way to building a much greener, resilient, and digital future. This comes with the help of the massive investments made by the EU, and the financial aid our government is set to receive to help us recover from the Covid-19 pandemic. However, this does come at the price of new tax regulations that will be introduced within the next 4 years as a new source of revenue for the EU to help repay borrowed money.