No. 34 The future of the Common Agricultural Policy 106 ANALYSIS AND PROSPECTIVE STUDIES CULTIVAR (EPG)2 and how the EU budget should be reformulated to respond to the challenges of climate change, competitiveness, defence, enlargement as well as unforeseen shocks. An analysis of the imbalances between budget allocations and the areas where EU-level service delivery offers the greatest added value suggests that a significant increase in the EU budget is needed if the EU is to meet its strategic objectives. It also sets out criteria for new EU budget revenue – own resources – and stresses that, since new revenue mechanisms must be financed from national budgets, the rationale for them should focus on supporting EU policy objectives rather than sustaining debates based on the net balance of the budget itself. The Draghi (2024) and Letta (2024) reports3 and the Bruegel memos for 2024 addressed to European Union leaders emphasised that pursuing the EU's main public policy objectives – higher productivity growth, greening the economy, safeguarding security while maintaining social cohesion – requires better coordination and delegation of powers at EU level. The Union budget is the most important instrument for structuring and financing such collective action, at a time when the pressure to ensure efficient spending and revenue generation is even greater than in previous budgetary periods. This Bruegel project sets out how the MFF could be reformed to better match the EU's objectives, addressing four main issues: • the composition and size of EU expenditure; • the revenue system (own resources); • the design of a more results-oriented budgetary method; • the budgetary implications of possible EU enlargements. Chapter 2 of the report analyses how EU expenditure should be reoriented to provide EPGs, or goods that would be more effectively provided collectively at EU level than by national governments, and also presents a detailed analysis of the EU's desirable objectives for the MFF. It highlights the trade-offs between transferring non-EPG expenditure to national budgets and increasing the overall size of the MFF, suggesting that a substantial increase in the EU budget is needed. It notes that only half of current EU expenditure is channelled to EPGs, while other non-EPG expenditure, representing around 0.3% of Gross National Income (GNI), should be transferred to national budgets, freeing up resources for the EPG. Even then, the EU budget would still be too small to accommodate the 0.9% of GDP in additional expenditure needed to fully finance these EPG. Furthermore, the EU still lacks a specific budgetary instrument to respond in a timely and coordinated manner to large-scale crises requiring joint expenditure, such as pandemics or migration waves. In the current MFF 2021-2027, heading 3 – Natural resources and the environment (€400 billion) is dominated by the Common Agricultural Policy (CAP), which supports farmers' incomes and rural development through the European Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD). Although food security has some aspects of public interest, the analysis points out that the CAP relies heavily on direct income support and sectoral subsidies, 2 A European public good (EPG) can be defined as a good that is insufficiently provided without public intervention and that should be provided at EU level to internalise externalities and reap economies of scale, while ensuring that local preferences are taken into account. The optimal level of provision of a public good is that which allows efficiency gains to be achieved while taking local preferences into account (Claeys and Steinbach, 2024). 3 Both are also the subject of review notes in this issue of Cultivar.
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