EU budget: Parliament pushes for new revenue sources

To fund the Covid-19 recovery and invest in Europe’s future, Parliament is calling for new streams of revenue for the EU budget. Learn more in our video.

Parliament pushes for new EU revenue sources

The Covid-19 pandemic has had an unprecedented socio-economic impact with the latest forecasts projecting the EU economy will contract by 8.3% this year.

The EU and its member states have already adopted exceptional measures in response to the crisis. As the Union works to repair the immediate damage brought on by the coronavirus, while also continuing to create a greener and more digital Europe, the main tool will be the EU’s long-term budget.

A recovery budget

Preparation for the EU's 2021-2027 budget got underway in May 2018. However, in light of the coronavirus outbreak, in May 2020 the European Commission put forward a new budget proposal to address the impact of the pandemic.

The Commission’s proposal followed a call from Parliament for a largescale recovery package and consists of a €1.1 trillion budget as well as a €750 billion recovery instrument consisting of grants and loans.

EU leaders reduced the proposed budget to €1.074 trillion at their summit on 17-21 July, which provoked protests from MEPs who pointed out that this would put essential programmes at risk. The budget is subject to negotiations between Parliament and national governments in the Council, which got underway in late August.

Learn more about the EU recovery plan.

Borrowing for the €750 billion recovery package would be made possible through an amendment of the rules setting the conditions for funding the EU budget.

To enhance the EU's capacity to borrow on the financial markets and later repay the debt, the Commission proposes increasing the maximum amount of funds the Union can raise from member states.

In a vote on 16 September, MEPs cleared the way for this procedure. Parliament’s vote allows the Council to swiftly adopt the new rules and start the ratification procedure in the 27 EU countries, with the aim of getting the recovery plan up and running as quickly as possible.

New revenue sources to finance the recovery

The EU budget’s revenue sources - also known as own resources - have remained unchanged for a number of decades. They include customs duties as well as national contributions based on VAT receipts and on gross national income. Over the years, Parliament has repeatedly called for a reform of the own resources system.

As Europe recovers from the coronavirus outbreak, MEPs are insisting on the introduction of new revenue sources to cover the refinancing costs of the recovery instrument, prevent sharp reductions in EU budget expenditure and ensure the Covid-19 response does not become a burden for future generations.

Parliament is proposing new revenue in the form of environmental and financial levies. They include:

  • A common consolidated corporate tax base
  • Digital services taxation
  • A financial transaction tax
  • Income from the emissions trading scheme
  • A contribution based on non-recycled plastic packaging waste
  • A carbon border tax

In its vote on 16 September, MEPs insisted that there should be a legally-binding calendar for the introduction of new revenue sources. Parliament has also repeatedly called for the abolition of all budgetary rebates and corrections, which benefit only some EU countries.

Europeans call for a bigger EU budget

Any decision on the long-term budget will require the consent of MEPs, and Parliament has said the introduction of new revenue sources is an essential prerequisite for an agreement. A survey commissioned by Parliament and conducted in June 2020 shows that the majority (56%) of Europeans believe the EU should have greater financial means to overcome the impact of Covid-19.

Speaking ahead of the July summit of EU leaders, Johan Van Overtveldt, chair of Parliament's budget committee, responded to a revised proposal by Council President Charles Michel on 13 July. “The positive steps regarding the size and balance of the recovery instrument cannot compensate for backward looking proposals on the long-term budget and on own resources," he said.

"Essential Union programmes are further cut, I refer to Horizon Europe, Erasmus+, Digital Europe and to migration.” He added that the EU’s long-term objectives have not disappeared with the Covid-19 outbreak and should not be sacrificed.

“We do not want to penalise future generations”

Speaking in a debate on 14 September, Valérie Hayer, one of Parliament’s lead MEPs on own resources reform, said: “We need to ensure that we don’t end up with the savings of Europeans being eroded. We need to look at the carbon footprint of cheap imports.." She added: "And do you think it’s right that multinationals can engage in tax optimisation? [...] These are the players that need to foot the bill for the recovery, it shouldn’t be European citizens.”

José Manuel Fernandes, the other lead MEP on own resources reform, said: "We do not want to penalise future generations or make cuts to EU programmes or policies. Hence our defence of new own resources, which need to be enough to be able to repay the borrowing.”

The next steps

Parliament will have a final say before the 2021-2027 budget can enter into force. The current multiannual budget runs out on 31 December 2020.