The European Parliament has paved the way for new sources of income for the European Union's budget, known as the "Own Resources Decision." On November 9, the decision was approved with 399 votes in favor, 138 against, and 61 abstentions. Armin Wisdorff, a member of the EU Budget Committee, expressed hope that the EU Council members would promptly approve the bill.
According to the European Commission, these new funds and tax revenues will primarily be collected at the national level, ensuring no additional tax burden on residents. Currently, the EU's main sources of income include customs duties, value-added tax contributions from member states, and direct contributions based on national income.
The amendment, once approved by the Council, will introduce three new sources of income for the EU. These include revenues based on the Emissions Trading System (ETS), resources generated by the proposed EU Carbon Border Adjustment Mechanism, and income based on corporate profits.
In June this year, the EU refined its proposal for the next generation of own resources, estimating the potential revenue from these three new sources. Starting in 2024, carbon emissions trading is expected to generate approximately 7 billion euros annually for the EU. In 2022, the carbon price rose from 55 euros per ton of CO2 in 2021 to 80 euros, doubling the member states' income from the ETS to 30 billion euros within two years. Carbon prices are expected to remain significantly higher than the 55 euros per ton standard in the coming years.
By 2028, the proposed EU Carbon Border Adjustment Mechanism is projected to bring in about 1.5 billion euros annually. Corporate profit-related resources are expected to contribute around 16 billion euros per year to the EU by 2024.
Additionally, own resources based on the share of multinational corporations' residual profits will be redistributed to member states according to the OECD/G20 tax reallocation agreement.
The new own resources are crucial for repaying the debt incurred under the EU's recovery plan, potentially easing the burden on member states. In July 2020, to boost post-pandemic economic recovery, the EU proposed a 750 billion euro recovery fund, comprising 390 billion euros in direct grants and 360 billion euros in loans to member states.
The EU's budget is under pressure, and continuous interest rate hikes by the European Central Bank have added significant strain, limiting the EU's ability to fund priority initiatives. From July last year to September this year, the ECB raised interest rates by a cumulative 450 basis points, effectively reducing inflation in the eurozone. However, prolonged high interest rates have also weakened the eurozone economy.
Members of the European Parliament are thus calling for the establishment of necessary frameworks and financing to effectively manage borrowing costs. In November 2020, the European Parliament and the Council agreed on the EU's long-term budget for 2021-2027.
Calculated at an interest rate gradually rising from 0.55% in 2021 to 1.15% in 2027, the borrowing cost for these seven years was expected to be 12.9 billion euros. However, with current rates exceeding 3%, the borrowing cost has risen to 15 billion euros.
The sharp rise in inflation and interest rates has impacted the EU's budget, significantly increasing the financing costs for the Next Generation EU projects. In June this year, the European Commission proposed amending the long-term budget to address these higher financing costs.
Wisdorff told Interface News, similar to the Own Resources Decision, that the Parliament is eager for the Commission to quickly reach a consensus to begin revising the long-term budget as soon as possible.
In October this year, following the Commission's proposal for a mid-term revision of the EU's long-term budget, MEPs approved an additional 10 billion euros for 2024-2027, on top of the 65.8 billion euros proposed by the Commission.
The proposed new sources of income are intended not only to alleviate the EU's budgetary constraints but also to fund the Social Climate Fund, ensuring a successful transition to a decarbonized economy.
