Innovative sources of financing

The economic and financial crisis has made fiscal consolidation imperative in EU countries and around the world.

Even so, resources must be found to meet key global challenges with significant budgetary implications in the areas of financial stability, climate change and development.

Cutting expenditure and improving existing tax systems should be the main responses to these challenges. But non‑traditional ways of raising public finance – 'innovative finance' – can make a significant contribution.

Innovative financing at a global level, a 2010 Commission staff working document, assessed the potential of non traditional sources of financing.

Certain instruments could provide a significant "double dividend" of increased revenues and improved market efficiency and stability:

• a stability levy on trading in financial products, which would correct some of the negative externalities that can create excessive systemic risk.
• the pricing of carbon emissions (in addition to the Emissions Trading Scheme) through better coordination at EU level of how carbon tax components are applied in existing energy taxes.

Global coordination

To be successful, most innovative financing instruments require coordination with relevant key players, many of them G 20 governments.

Actions by the EU alone would be less effective but could be considered, particularly if key countries would be likely to follow the EU's lead.

Financing for development

New instruments for financing development have been proposed, and existing ones could potentially be scaled up.

In 2005, New sources of development financing examined potential ways to increase development aid in order to meet the UN's Millennium Development Goals.

No single perfect solution existed, but most options were not mutually exclusive and could be combined. This could in fact be an advantage, since different options would likely only be feasible at different times – depending on the preparations needed for implementation, phasing-in possibilities or the medium-term erosion of the tax base.

Combining options would also diversify the risks arising from uncertainties associated with the more innovative proposals.

Commission working documents

• Innovative financing at a global level [354 KB] – SEC(2010) 409
• New sources of development financing: review of options [293 KB] – SEC(2005) 467