Why is Parliament calling for new EU revenue-raising powers?

24 Sep 2020 05:22 PM

Parliament is calling for new EU revenue sources to invest in Europe’s future and support the Covid-19 recovery without burdening taxpayers.

With negotiations underway on the EU’s 2021-2027 budget as well as the €750 billion Covid-19 recovery instrument, one of the main sticking points is the issue of own resources.

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 current system of own resources has remained largely unchanged for three decades and Parliament has long called for it to be overhauled.

What own resources currently exist?

As the EU budget must always be in balance, annual revenue must completely cover annual expenditure. For the current budgetary period (2014-2020), the overall amount of own resources cannot exceed 1.23% of the EU’s gross national income.

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 Parliament proposing to reform EU own resources?

Parliament has long been of the view that the EU revenue system is opaque, unfair and in need of reform, so as to be able to address current challenges and achieve meaningful results for Europeans.

To reduce reliance on GNI- and VAT-based contributions from EU countries, Parliament is calling for the introduction of new genuine revenue sources linked to EU policies and objectives. Parliament’s proposed timeline for the introduction of new revenue sources is:

1 January 2021: a new national contribution based on non-recycled plastic packaging waste (would incentivise reduced use of single-use plastics, foster recycling and boost the circular economy)
1 January 2021: 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)
1 January 2023: own resource based on digital services taxation (ensuring fair taxation of the digital economy)
1 January 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)
1 January 2024: own resource based on a financial transaction tax (ensuring the financial sector pays its fair share of taxes)
1 January 2026: own resource linked to the common consolidated corporate tax base (a share of companies' taxable profits as calculated under a single set of rules in the EU)

MEPs also insist on the abolition of all rebates.

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