EU BUDGET: COMMISSION PROPOSES TO SCRAP UK REBATE AND INTRODUCE 'EU TAX'.

UK budget rebate.

The most hotly-disputed point in the Commission's new budget proposal is likely to be the scrapping of the UK's rebate and the introduction of a new general system for all net contributors beyond a certain level. The UK continues to benefit from a sizeable rebate on its contributions won in 1984 by the then Prime Minister Margaret Thatcher; the arrangement was based on the fact that the UK at the time was the least prosperous net contributor to the EU, and hardly benefited from the Common Agricultural Policy (CAP), which at the time took up the lion's share of the EU Budget. Ms Schreyer, however, declared that "in view of the wonderful economic development of the UK since 1984, we have concluded that we can no longer justify this rebate". The UK is now the richest country in the EU in terms of its GNI per capita, which stands at 111.2% of the EU average in 2003 - France in comparison stands at 104.2% and Germany has dropped to 98.6%. This comes in sharp contrast to 1984, when the UK was the least prosperous net contributor to the EU Budget with 90.6% of the EU average.

The Commission, therefore, considers that "the current system of a unique correction for the UK cannot continue". Partly because of the looming cost of enlargement - which has been factored into the UK rebate -, the UK's correction is estimated to increase by over 50% to reach Euro 7 billion per year in 2007-2013, gradually making the UK the smallest net contributor to EU Budget. Meanwhile, budgetary balances for 2008-2012 will deteriorate for all the other net contributors across-the-board under the current budgetary system.

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"Budgetary balances", also called "net balances", are measured by the difference between contributions to and receipts from the EU Budget. Under the current system, Germany is the largest net contributor to the EU Budget, with Euro 5 billion in 2002. The Netherlands is the largest net contributor in percentage of its Gross National Product, with 0.51% of GNP going to the EU Budget in 2002 compared to 0.24% in Germany and 0.14% in France.

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Debate looming.

The British, however, are unlikely to agree easily to the scrapping of a rebate which many in the UK consider is still justified. Without its special rebate, the UK will become the highest net contributor to the EU Budget at 0.51% of its GNI, twice what it pays under the current system. Commissioner Schreyer on July 14 confirmed that the budget package was adopted without a vote...