This is part of Scenario 5 – Human Federation in 2040
The EF aligns its internal fiscal policies. Following the constitutional arrangements, a former member state of the EU contributes now 50% of its budget to the central EF budget, which is managed by the EF Finance Minister. However, on joining the EF, a former member state contributed initially only 10% of the budget in the first year and another 10% for the next 4 years, until half of its budget was fully managed by the EF Ministry of Finance. The current Minister of Finance is German. He controls the entire budget of the EF.
There is an independent European Central Bank (ECB), which has existed since 1998. But today it serves the whole EF, because there is no longer the Eurozone. The EF currency is the Euro, as before, worth now 3 US dollars. The US currency finally gave in to structural faults, on which its economy was based. Capitalism could no longer spread out of control globally. Business has become much more regulated now and restricted. Goods can now be exchanged free of customs duty in almost all countries in the world but there are far more effective controls put on large global corporations, which were threatening most of the states by setting the economic (and quite often political) conditions that were beneficial for corporations but undermined whole national economies.
ECB is responsible among others for setting up the interest rate, implementing the monetary policy of the EF, taking care of the foreign reserves, and overseeing the European Banking Union. There is also the European Monetary Fund, which is essentially the Bank of last resort.
The EF has now the largest GDP in the World (when counting all four Zones and including the USA) that amounts to about 70% of the world’ GDP.
The Stability and Growth Pact set at that time of the Euro currency crisis in 2012, has now become the centrepiece policy in all EF Zones. This sets the rules designed to ensure that EF itself and countries in the EF Convergence Zone and the EF Single Market Zone must pursue sound public finances and coordinate their fiscal policies. As before, countries cannot exceed their budget deficit by more than 3% and their national debt cannot exceed more than 60%. There are still penalties for exceeding these thresholds. The same rules apply for the countries in the EF Customs Union and EF Association Area, if they receive funding within the Global Wealth Redistribution Fund, otherwise, the funding is cut down.
Social Cohesion Fund is the continuation of the same fund existing during the European Union days. It is many times bigger than before, because much more money is transferred to the EF budget from the regions. The objective of this fund is to invest in poorer areas of the EF to help reduce regional economic imbalance. The richer regions pay billions of Euros each year to improve economic and social conditions in poorer regions. This is now working much better than before, because help can be directly allocated to smaller regions, reducing the imbalance faster and more fairly.
EF Investment Fund. This fund provides investment mainly to smaller companies within the EF and all subsidiary zones. This is already the biggest such fund in the world.
All corporation and income taxes are collected directly by the EF, while VAT is collected at a regional level. 35% of the EF budget, which is now approaching €60 trillion, is distributed directly to EF regions, mainly through the EF projects and social cohesion programme. The rest of the budget is to finance central EF functions, such as defence, security, home affairs, the EF’s Welfare State and health service.
There is one flat corporation tax at 70%. It may seem high but it is the consequence of the decision made in 2032 when the EF decided that there would be no taxes on robots, which were introduced under some pressure from the trade unions in some of the former EU countries. This has worked very well, since vast majority of companies are now ‘employing’ robots or AI agents, so such a policy does not stifle innovation. There are now more robots and AI Agents than people on the planet – close to 9 billion. On average there are about 20% of human employees in manufacturing companies in the EF. In distribution and transport companies there are less than 10% of human employees. The biggest number of employees is in the service sectors, such as elderly care, medical care, fashion, leisure and entertainment.