By Jan Strupczewski and Elizabeth Miles
BRUSSELS (Reuters) - The European Union will have to change the way it collects and spends its funds to cope with Britain's leaving and with other challenges, the European Commission said on Wednesday.
It suggested the bloc could tap into new taxes and make savings.
Britain contributes around 16 percent to the overall EU budget, or 10 billion to 11 billion euros annually, so its exit in March 2019 will create a financing gap that will be difficult to fill.
"We will have to save money because it will not be possible to make up completely for the gap," Budget Commissioner Gunther Oettinger told a news conference.
He presented a paper to be debated by EU governments this year, laying out options.
"The EU budget ... will change after 2020. This is certain -- the status quo is not an option," the Commission paper said.
The Commission outlined five scenarios, from a much lower to a significantly higher budget from 2020 under the headings of "carrying on", "doing less together", "those who want more, do more", "radical redesign" and "doing much more together".
Only the "doing less together", which assumes a much lower budget, keeps the current financing sources and levels unchanged. All others assume new revenue sources, or bigger national co-financing and a review of spending or both.
To fill the gap caused by Brexit, the document said, the EU could tap sources like corporate taxes, a tax on financial transactions, or levies on electricity, motor fuel, carbon emissions or proceeds from central bank currency issuance.
The taxes, collected nationally, could be passed on in part, or in full to the EU, especially if they were generated directly by EU policies -- like revenues from auctions under the Emissions Trading System or emission premia for cars.
The EU now gets its money from national contributions based on gross national income, from customs duties collected at all EU borders and from a tiny cut of national value added taxes.
To make savings for the EU budget, governments could take on some of the direct payments to farmers made by the EU under the bloc's Common Agricultural Policy, the paper said.
Governments could also put in more of their own money to finance projects funded by the EU under its cohesion policy -- aid to less developed regions to equalise living standards.
The EU could also try to make better use of existing funds, leveraging them to finance projects, similarly to its investment fund EFSI which is to generate some 500 billion euros of investment by 2020 by leveraging only 33.5 billion of own funds.
All this would could help finance new areas of EU activity.
"In the future, migration management, internal and external security, external border control, the fight against terrorism and defence will need to be budgeted ... alongside continuing investment to support stability and sustainable development in our partner countries," the Commission paper said.
MONEY AND THE RULE OF LAW
Under pressure from the EU's biggest countries, who are also the biggest net contributors to the budget, the Commission put in the paper an idea that disbursements from the next budget could be linked to governments abiding by the rule of law.
This is a clear reference to Poland which is one of the biggest beneficiaries of the EU budget and the only country the Commission is monitoring if it observes the rule of law.
EU officials say Poland has been ignoring the Commission's recommendations under the rule of law procedure, which call on the nationalist-minded government to respect the independence of the judiciary, media and civil rights.
The head of the European Commission, Jean-Claude Juncker, has said he was against linking the rule of law procedure with budget payments. But there is growing pressure from Germany, France and Italy as well as Sweden to consider it.
"(French) President (Emmanuel) Macron saying the European Union is not a supermarket is the most strongly-worded expression of that," Commission First Vice President Frans Timmermans told Reuters.
"I... fully understand the point made by the French president, you can't pick and chose, you can't say 'Give us the money and we don't want to hear anything else about European rules'," Timmermans said.
(Reporting By Jan Strupczewski and Elizabeth Miles; Editing by Philip Blenkinsop/Jeremy Gaunt)
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