The organisation for developed economies says the EU budget is not sufficiently supportive of growth and integration and higher spending is needed on innovation and cross-border infrastructure.
In a major report taking stock of progress and challenges facing the European bloc, it recommends higher income-based contributions from member states’, new sources of revenue, and a reallocation of spending.
The OECD report, The European Union: A People-Centred Agenda, paints a positive picture of EU achievements since the bloc’s formation in a wide range of areas, from supporting democracy and civil rights to fostering infrastructure and services.
It says the EU budget has made it possible to finance many successful policies, but is small overall and needs reform.
The EU’s 2018 annual budget amounted to about €160bn ($180bn), which represents 1% of the bloc’s total GDP and around 2% of public expenditure of EU countries.
The OECD says this is already stretched and and there are new financing needs, not least the challenges posed by digitalisation.
It argues that the composition of the budget has improved – for example, about 40% is on farming compared to 70% in 1985 – but more needs to be done to make it more inclusive and growth-enhancing.
“Its small size remains a limit on possible gains from more coordinated policies across the region, notably to help spur convergence and smooth economic shocks,” the report states.
Spending on research and development only accounts for 13% of the EU budget, and this should be “significantly increased”, says the OECD, given Europe’s low growth potential and the value added by EU-level R&D support compared to national programmes.
The organisation argues that financing new priorities will require member states to make higher income-based contributions and new sources of revenue alongside a reallocation of spending.
“Additional funding could come from eliminating the system of special reductions that some of the largest net contributor countries benefit from,” the report states.
Modernising the composition of the budget would, in particular, enable EU leaders to target new priorities such as digital infrastructure.
The OECD argues that there is vast economic potential in establishing a “digital single market” in Europe, which could be the largest such market in the world in terms of size and could be worth on average €809 per year to each EU citizen.
