To invest in Europe’s future and support the recovery, the EU has agreed on a binding calendar to introduce new revenue sources for the Union’s budget.
In a deal on the EU’s 2021-2027 budget as well as the €750 billion Covid-19 recovery instrument on 10 November 2020, the Parliament, Council and Commission reached an agreement on a binding timeline for the introduction of new EU revenue sources, including levies on unrecycled plastic waste, the tech giants and major foreign polluters.
Read more: the EU's long-term budget explained
What are own resources?
EU countries contribute to a common EU budget in order to achieve common objectives. Unlike national budgets, the EU budget is an investment budget and is not permitted to run a deficit. The EU treaties stipulate that the Union’s budget “shall be financed wholly from own resources”.
These revenue sources are determined by the Council, acting unanimously having consulted the Parliament, and must be ratified also by each EU country. The system of own resources remained largely unchanged for three decades and Parliament has long called for it to be overhauled.
What own resources already exist?
As the EU budget must always be in balance, annual revenue must completely cover annual expenditure.
EU revenue presently consists of the following:
- Traditional own resources (mainly customs duties, previously also included sugar levies; normally account for about 10% of the own resource revenue)
- VAT-based own resource (transfer of a percentage of the estimated VAT collected by EU countries; normally also accounts for about 10% of revenue )
- GNI-based own resource (EU countries transfer a share of their annual gross national income; accounts for about 70% of own resource revenue )
- Other revenue (includes fines to companies breaching EU competition law, contributions of non-EU countries to certain EU programmes and taxes on EU staff's salaries)
Some EU countries - Austria, Denmark, Germany, the Netherlands and Sweden - currently benefit from rebates on their contributions to the EU budget.
Following an agreement with the Council and the Commission , a revenue source based on non-recycled plastic packaging waste has been in place since 1 January 2021. This has encouraged reducing single-use plastics, as well as recycling and also boosted the circular economy.
How are the EU's own resources being reformed?
Parliament believed for a long time that the EU revenue system was opaque, unfair and in need of reform in order to better tackle current challenges and achieve meaningful results for Europeans.
To reduce reliance on contributions based on gross national income and VAT from EU countries, Parliament called for the introduction of new genuine revenue sources linked to EU policies and objectives.
Various new own resources are in the pipeline based on:
- The proceeds of the Emissions Trading System (revenue from the system which restricts the volume of greenhouse gases that can be emitted by for example energy-intensive industry, power producers and airlines)
- Digital services taxation (ensuring fair taxation of the digital economy)
- A carbon border adjustment mechanism (a carbon price on imports of certain goods from outside the EU, would help ensure a level playing field in the fight against climate change)
- A financial transaction tax (ensuring the financial sector pays its fair share of taxes)
There will also be an own resource linked to the corporate sector or a new common corporate tax base.
In May 2023, the Parliament approved a report that calls for an assessment of the reform process so far, and also proposes some fresh ideas for additional revenue sources such as a tax on crypto assets.
In June 2023, the Commission submitted a proposal for new sources of budget revenue:
- Based on revenue from emission trading (ETS): 30% of the revenue from auctions of ETS allowances will be allocated to the EU budget.
- Generated by the EU carbon border adjustment mechanism (CBAM). 75% of the revenue from the mechanism will be allocated to the EU budget.
- Linked to company profits: for the moment it would be based on a statistical estimate approximating company profits; later it could be linked to an initiative to simplify corporate tax rules.
Parliament supported the Commission proposal, although MEPs underlined that the rules on reducing the net contributions of EU countries through rebates or corrections should be revised.
All EU countries need to agree on adding new sources of income to the EU budget for it to enter into force.
What benefits will the own resources reform create?
These new revenue sources will help pay off the joint debt taken by EU countries to finance the Covid-19 recovery. Without new own resources, the borrowed recovery money would have to be paid back through further reductions to EU programmes and/or higher GNI-based contributions from EU countries. MEPs also argue that increasing interest rates put more pressure on the EU budget as borrowing costs are rising.
Parliament wants to ensure that the burden is not on the taxpayer, but on the tech giants, tax dodgers, big foreign polluters and others who don't pay their fair share.
The new own resources ensure that the EU’s priorities – such as the Green Deal and the digital transformation – are better reflected in the financing of its budget. Additionally, they support the functioning of the single market and reduce reliance on GNI-based national contributions.