With the set of new own resources and other reforms, the EU institutions would ensure that the European’s next generation will truly benefit from a set of the present transitional measures. As part of the political agreement on the 2027 long-term budget and the NextGenerationEU recovery instrument, the new reform package is expected to activate and review the reform process of the revenue system with the inclusion of new parameters.
As an answer to the unprecedented pandemic challenge, the EU institutions agreed in 2020 on a record stimulus package of more than €2 trillion aimed at boosting the long-term budget with more than €800 billion firepower of the temporary recovery instrument NextGenerationEU.
The next generation’s program has enabled the Commission to issue bonds on a large scale backed by the EU budget; to repay the borrowing, the EU institutions agreed to introduce new own resources to allow more diversified and resilient types of revenue related to the EU-wide political priorities. In 2021, the Commission has raised €71 billion through the long-term bonds and currently has €20 billion of short-term EU-Bills outstanding under a sovereign-style diversified funding strategy.
On the NextGenerationEU program in: https://commission.europa.eu/strategy-and-policy/eu-budget/long-term-eu-budget/2021-2027/revenue/next-generation-eu-own-resources_en
France, Germany and Portugal have already started discussion at the end of this August on additional levies and/or taxes to help finance the EU’s next 7-year budget.
The challenges are numerous: e.g. the Commission has to repay the so-called “next generation’s” EU bonds”, on top of billions in joint post-pandemic debt; besides, the EU will need additional funds for such actions as the Ukraine’s reconstruction, climate transition, energy interconnection issues and tackling migration flows, etc.
Main types of levies are already under discussion: e.g. there are already several suggestions for the EU’s “own resources”, proposals on financial transaction tax and a corporate sector’s levy, etc. Most complicated will be discussions on the financial transaction tax: the Commission made other proposals this June for additional contributions from EU countries based on company profits.
Discussions would be both difficult and cumbersome: the EU member countries would have to debate the proposals already this fall, which would take some time because new own resources need to be ratified by all the EU members.
As an answer to the unprecedented pandemic challenge, the European Union agreed in 2020 on a record stimulus package of more than €2 trillion – boosting the long-term budget with more than €800 billion firepower of the temporary recovery instrument NextGenerationEU.
With the NextGenerationEU program, the Commission has issued bonds on a large scale backed by the EU budget with the aim of incurring debt to support the EU member states to combat the pandemic crisis as well as create recovery and resilience efforts. To help repay the borrowing, the EU institutions agreed to introduce new own resources to allow more diversified and resilient types of revenue, directly related to the main EU’s common political priorities. New own resources will avoid that NextGenerationEU repayments lead to undue cuts to EU programmes or excessive increases in the member states contributions.
In 2021, the Commission has raised €71 billion via long-term bonds and currently has €20 billion of short-term EU-Bills outstanding under a sovereign-style diversified funding strategy.
More in factsheet on own resources: https://ec.europa.eu/commission/presscorner/detail/en/fs_21_7047
On legal acts concerning own resources in: https://commission.europa.eu/publications/own-resources-legal-texts_en
Next generation’s own resources
At the end of June 2023, the Commission concluded proposals on the next generation of own resources: the package included a new temporary statistical own resource based on company profits. Following the political agreement on the Fit For 55 package, which seeks to ensure EU policies contribute to the European climate neutrality, the Commission also proposed adjusting the own resources proposals based on the Emissions Trading System (ETS) and Carbon Border Adjustment Mechanism (CBAM) compared to the original proposals from December 2021.
Initial proposal from December 2021 in: https://ec.europa.eu/commission/presscorner/detail/en/ip_21_7025
The new own resources should also finance the Social Climate Fund; the latter is an essential element of the proposed new Emissions Trading System covering construction sector, buildings and road transport, and will contribute to ensuring the just-transition process to a decarbonised economy, i.e. “leaving no one behind”.
EU emissions trading scheme
The Fit for 55 package of July 2021 aims to reduce net greenhouse gas emissions in the EU by at least 55% by 2030, compared to 1990, to fulfill the decision of reaching the EU’s climate neutrality by 2050. This package includes a revision of the EU Emissions Trading System: thus, in future, emissions trading will also apply to the maritime sector, the auctioning of aviation allowances will increase and a new system for buildings and road transport will be established.
Under the current EU Emissions Trading System, most revenues from the auctioning of emission allowances are transferred to national budgets.
The Commission proposed presently, that in future, 25% of the revenue from EU emissions trading would flow into the EU budget. At cruising speed, revenues for the EU budget are estimated at around €12 billion per year on average over 2026-2030, with about €9 billion on average during 2023-2030.
Carbon border adjustment mechanism
The objective of the carbon border adjustment mechanism, CBAM which the Commission also proposed in July 2021, is to reduce the risk of carbon leakage by encouraging producers in non-EU countries to green their production processes. It will put a carbon price on imports, corresponding to what would have been paid, had the goods been produced in the EU.
This mechanism will apply to a targeted selection of sectors and is fully consistent with WTO rules.
The Commission proposes to allocate to the EU budget 75% of the revenues generated by this carbon border adjustment mechanism. Revenues for the EU budget are estimated at around €1 billion per year on average over 2026-2030, with about €0.5 billion on average between 2023-2030. However, the CBAM is not expected to generate revenue during 2023-25 transitional period.
International corporate taxation framework
In October 2021, more than 130 countries-members of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting agreed on a reform of the international tax framework: a two-pillar solution is aimed to tackle tax avoidance and ensure that profits are taxed where economic activity and value creation occur. The signatory countries are representing more than 90% of the global GDP. Pillar One of this agreement will reallocate the right to tax a share of so-called residual profits from the world’s largest multinational enterprises to participating countries worldwide.
The Commission proposes an own resource equivalent to 15% of the share of the residual profits of in-scope companies that are reallocated to the EU member states.
The Commission proposed a Directive in 2022, once the details of the OECD/G20 Inclusive Framework agreement on Pillar One are finalised, implementing the Pillar One agreement in line with the requirements of the EU Single Market. This process is complementary to the Pillar Two Directive for which the Commission adopted a separate proposal. Pending the finalization of the agreement, revenues for the EU budget could amount to roughly between €2.5 and €4 billion per year.
In order to incorporate the new proposals on new own resources in the EU budget, the EU needs to amend two key pieces of legislation:
= First, the Commission proposes to amend the Own Resources Decision to add the three proposed new resources to the existing ones.
= Secondly, the Commission also puts forward a targeted amendment of the regulation on the current long-term EU budget 2021-2027, also known as the Multiannual Financial Framework (MFF Regulation). This amendment offers the legal possibility to start repaying the borrowing for NextGenerationEU already during the current MFF. At the same time, it proposes to increase the relevant MFF expenditure ceilings for the years 2025-2027 to accommodate the additional expenditure for the Social Climate Fund.
The Own Resources Decision needs to be approved unanimously in Council after consulting the European Parliament. The decision can enter into force once it is approved by all EU countries in line with their constitutional requirements. The MFF Regulation needs to be adopted unanimously by the Council after obtaining the consent of the European Parliament.
The Commission will present a proposal for a second basket of new own resources by the end of 2023; the second package will be based on the proposal on “Business in Europe: Framework for Income Taxation, BEFIT” which is foreseen for the end of 2023.
On the EU’s revenue system in: https://commission.europa.eu/strategy-and-policy/eu-budget/long-term-eu-budget/2021-2027/revenue_en