How is the budget financed?
The EU budget:
- is funded chiefly (99%) from the EU's own resources, supplemented by other sources of revenue
- is based on the principle that expenditure must be matched by revenue
- has in-built schemes to compensate certain EU countries
- Own resources account for 99% of the budget. They are not allowed to exceed 1.23% of the EU's gross national income (GNI).
- The remaining 1% of budget revenue comes from other sources of income.
Traditional own resources
- mainly customs duties on imports from outside the EU and sugar levies.
EU governments keep 25% to cover the cost of collection.
In detail: Public finances – page 238
own resource from value added tax (VAT)
A standard percentage is levied on the harmonised VAT base of each EU country. The VAT resource accounts for around €14bn.
The VAT base to be taxed is capped at 50% of GNI for each country. This rule is intended to prevent less prosperous countries having to pay a disproportionate amount (in such countries consumption – and so VAT – tend to account for a higher percentage of national income).
In detail: Public finances – page 239
own resource based on gross national income (GNI)
A standard percentage is levied on the GNI of each EU country. It is used to balance revenue and expenditure, i.e. to fund the part of the budget not covered by other sources of income.
Although designed simply as a balancing system, this has become the largest source of revenue – €92.7bn in 2010.
In detail : Public finances – page 241
The budget also has other sources of revenue, e.g.:
- taxes on EU staff salaries
- contributions from non-EU countries to certain programmes
- fines on companies for breaching competition laws, etc.
In detail : Public finances – page 245
When the EU Council and the European Parliament approve the annual EU budget, total revenue must equal total expenditure.
In practice, however, actual revenue and expenditure often differ from the estimates. There is usually a surplus, which is used to reduce EU countries' contributions to the budget for the following year.
In the past, some countries felt that they were paying too much towards the budget, compared to other countries.
Measures were taken to correct (compensate) these imbalances, including:
- the 'UK rebate' – the UK is reimbursed by 66% of the difference between its contribution and what it receives back from the budget (worth about €4bn in 2010). The calculation is based on its GNI and VAT
- lump-sum payments to the Netherlands and Sweden
- reduced VAT call rates for the Netherlands, Sweden, Germany and Austria.
The cost of the UK rebate is divided among EU member countries in proportion to the share they contribute to the EU's GNI. However, since 2002 this has been limited to 25% of its normal value for Germany, the Netherlands, Austria and Sweden, who considered their relative contributions to the budget to be too high. This cost is shared by the other 22 EU members.
In detail :