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Why has Parliament called for new EU revenue-raising powers?

To invest in Europe’s future and support the Covid-19 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 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. 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; accounted for 13% of own resource revenue in 2018)

  • VAT-based own resource (transfer of a percentage of the estimated VAT collected by EU countries; accounted for 11% of revenue in 2018)

  • GNI-based own resource (EU countries transfer a share of their annual gross national income; accounted for 66% of own resource revenue in 2018)

  • Other revenue (includes fines to companies breaching EU competition law, contributions of non-EU countries to certain EU programmes and taxes on salaries of EU staff; accounted for 10% of total EU revenue sources in 2018)

Some EU countries (Austria, Denmark, Germany, the Netherlands and Sweden) currently benefit from rebates on their contributions to the EU budget.

How is the EU's own resources being reformed?

Parliament has believed for a long time that the EU revenue system is 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 has called for the introduction of new genuine revenue sources linked to EU policies and objectives. Following the binding agreement reached on 10 November 2020, the proposed timeline for the introduction of new revenue sources is:

  • By 2023: own resource 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 energy-intensive industry, power producers and airlines)

  • By 2023: own resource based on digital services taxation (ensuring fair taxation of the digital economy)

  • By 2023: own resource based on 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)

  • By 2026: own resource based on a financial transaction tax (ensuring the financial sector pays its fair share of taxes)

  • By 2026: own resource linked to the corporate sector or a new common corporate tax base

As part of a raft of new legislation to bring about climate neutrality by mid-century, on 14 July 2021 the European Commission published its proposals for a carbon border adjustment mechanism, The new tariff will tax imports (for example of iron and steel, cement, aluminium or fertilisers) from countries that are not decarbonising their economies at a similar rate to the EU.

The Commission also presented a proposal to revise the Emissions Trading Scheme in line with the EU's target of achieving net emission reductions of at least 55% by 2030. ETS auction revenues will also serve as an EU own resource.

The Commission is expected to publish a proposal for an EU digital levy in autumn 2021.

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. 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 do not currently pay their fair share.

The new own resources will also 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 will support the functioning of the single market and reduce reliance on GNI-based national contributions.

How are EU revenue sources decided?

Following consultation with the Parliament, the system of EU own resources was adopted by unanimity in the Council and must be ratified by all EU countries. Parliament approved its position on own resources in a vote on 16 September 2020.

On 16 December 2020, MEPs approved the EU’s 2021-2027 budget as well as the agreement on the introduction of new revenue sources. Following its ratification by all EU countries, the reform of how the EU budget is financed applies retroactively from 1 January 2021, allowing the EU to borrow €750 billion for the EU's social and economic recovery.

Source: European Parliament News


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