EU budget: Commission puts forward an adjusted package for the next generation of own resources

As committed during the negotiations on the long-term EU budget 2021-2027, the European Commission has today completed its proposal for a next generation of own resources. Today’s package includes 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 climate neutrality of our continent, the Commission  also proposes to adjust 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.

Today’s proposal completes and updates the package for the next generation of own resources to the budget put forward back in December 2021. Three sources of revenue were proposed back then: one based on revenues from emissions trading (ETS), one drawing on the resources generated by the proposed EU carbon border adjustment mechanism, and one based on the share of residual profits from multinationals that will be re-allocated to EU Member States under the recent OECD/G20 agreement on a re-allocation of taxing rights (“Pillar One”). This is completed today by a statistical own resource linked to the corporate sector. Once in force, this basket of new own resources will ensure an adequate long-term financing of the budget including the repayment of NextGenerationEU.

European Commission President von der Leyen said: “Today’s proposal completes our proposal for stable new own resources to finance the massive NextGenerationEU investments in EU recovery and resilience with four new own resources for the EU budget. Member States now have all the elements to come to a quick agreement and secure the funding for the EU budget.”

New temporary statistical based own resource on company profits

The European Parliament, the Council and the Commission jointly agreed in 2020 that an own resource linked to the corporate sector should be proposed. The new statistical own resource based on company profits will be temporary, to be replaced by a possible contribution from Business in Europe: Framework for Income Taxation (BEFIT), once proposed and unanimously agreed by all Member States.

In the meantime, the own resource put forward today will be calculated as 0.5% of the notional EU company profit base, an indicator calculated by Eurostat on the basis of the national accounts statistics.

It is not a tax on companies, nor does it increase companies’ compliance costs. It will be a national contribution paid by Member States based on the gross operating surplus for the sectors of financial and non-financial corporations, which would help to balance the basket of own resources and further diversify the revenue sources of the EU budget.

The statistical own resource on company profits would provide revenues as of 2024 of about €16 billion (2018 prices) per year.

Adjustment of the ETS own resource

Following the increase in the carbon price to about € 80 per tonne of CO2 in 2022 (from €55 in 2021), Member States revenues from the Emissions Trading System (ETS) have doubled in the course of two years to almost €30 billion in 2022. Prices are expected to remain well above €55 per tonne of CO2 in the years to come. As compared to its original proposal of December 2021, the Commission proposes to increase the call rate for the ETS-based own resource to 30% from all revenues generated by EU emissions trading, up from 25% originally proposed. This is expected to generate EU budget revenue of about €7 billion (in 2018 prices) annually from 2024 onwards. This is expected to increase to about €19 billion per year from 2028, when revenues from the new ETS will also enter into the EU budget. At the same time, annual revenues from ETS allocated to Member States could go above €46 billion, thus exceeding by far what was expected when the Fit for 55 proposal was tabled.

Adjustment of the CBAM

In light of the Fit for 55 package, the Commission is also proposing a technical adjustment to the control framework of the Carbon Border Adjustment Mechanism (CBAM), to align its original proposal for an own resource with the adopted text. This source of revenue is expected to generate about €1.5 billion per year as of 2028 for the EU budget.

Next steps

Today’s proposal will feed into the negotiations with the Member States in the Council on a next generation of own resources of the budget.

The legislative discussions on the first proposal of December 2021 have made limited progress. While a second proposal for new own resources was originally due by 2024, the Commission decided to put it forward earlier, so that Member States have all the elements to engage in the negotiation in the framework of the agreed roadmap. The Commission calls on the Council to accelerate these negotiations.

Background

The EU budget is currently being financed via four own resources. Introducing new sources of revenue has been a long-standing ambition for EU-policy makers, as it would create the following benefits:

• Reduce the weight of the Gross National Income (GNI)-based own resource in the EU budget;
• Reform the own resources system to support EU priorities, by designing new own resources that bring also additional benefits alongside the stream of fiscal income;
• Introduce more diversified and resilient types of own resources, directly related to EU competences, objectives and priorities.