EU budget "own resources" and Commission's proposed changes

13 November 2014
by eub2 -- last modified 13 November 2014

The EU's Member States invited the Commission on 7 November 2014 to come forward with a proposal for a targeted and limited amendment of the part of the "own resources" legislation implementing the rules of the annual adjustments of Member States' share in the EU budget. This fact sheet aims to provide a comprehensive yet accessible summary of the proposal.

1. Where do the EU budget's financial resources come from?

Unlike most budgets (national governments, private companies), the EU's annual budget is driven by the estimates of expenditure. Only once those estimates are completed are the required resources calculated.

The revenue side of the budget consists of three different components: "traditional own resources" (mainly customs duties on imports into the EU and sugar levies), a resource calculated on the basis of the value added tax (VAT), and finally a resource calculated on the basis of Member States' Gross National Income. Chronologically, the so-called "traditional own resources" are calculated first, then the VAT-based resource, representing 0.3 % of the harmonised VAT base of each Member State as well as miscellaneous revenue. Finally, the gap between the estimated expenditures and the above-mentioned resources is filled by the Gross National Income (GNI) contribution.

Originally, the customs duties constituted the main source of income to the EU budget. However, as the EU signed free trade agreements with more and more partners around the world, this specific source of income decreased; today it usually represents around 13% of the income. As a consequence the GNI contribution kept increasing and amounts to more or less 75% of the annual budget.

2. How is the annual GNI contribution calculated?

Each May, Member States and the Commission meet to estimate the amount of individual GNI contributions. This consists of putting together and agreeing on everybody's estimates of its GNI for the year. Based on these provisional figures, each Member State's GNI contribution for the year is calculated.

Later in the year (usually October), statistical experts meet with Eurostat to replace estimates with actual GNI results of previous years. This can go back many years if statistical issues have remained open. The estimates are then compared with the more up-to-date figure of each Member State's GNI. This leads to an adjustment of each Member State's contribution: if your most recent GNI is higher than previously established compared to other states' GNI, your contribution to the EU budget will increase and vice versa.

The current implementing rules of the Council Decision on own resources, adopted at unanimity, specify that the result of that technical adjustment automatically comes into force on 1 December. They do not allow Member States to defer payments neither to pay in various instalments.

3. Why does the Commission propose to amend the own resource decision?

This year's adjustment exercise showed that under exceptional circumstances this exercise, though automatic and based on rules agreed by all parties, can trigger unexpectedly much higher GNI contributions for some Member States which have to be paid in a very short period of time. As a result, the Council invited the Commission to come forward with a proposal for a targeted and limited amendment to those implementing rules (Council Regulation No 1150/2000) to take account of the exceptional circumstances The Commission proposes to introduce a new paragraph (7a) in article 10 of the implementing regulation.

4. What does the proposed change consist of?

The proposal introduces the possibility for Member States, under certain conditions, to ask to postpone, until 1 September next year at the latest, the payment of additional amounts resulting from the adjustment exercise. It takes into account both the impact of the annual adjustment on any individual Member State, and equal treatment of all Member States should the global impact (on all Member States put together) of the adjustment be exceptionally high. This provision can be activated in two concrete situations:

a)    If as a result of the annual adjustment, the increase of that member state's VAT- and GNI- contribution exceeds 2/12 of its yearly contribution to the EU budget (both for its share of VAT resource and GNI contribution); or

b)    If the result of the annual VAT and GNI adjustment results in a global (for all Member States put together) amount exceeding half of one twelfth of the amount due by all Member States together as own resources based on VAT and GNI.

5. Can the Commission communicate faster to the Member States the impact of GNI adjustments?

The Commission received reliable GNI figures on 15 October and provided each Member State with a detailed note informing them of the impact of the adjustment on each national treasury on 17 October. No reaction was received for the following week from any Member State.

The figures provided for the GNI adjustments come from the Member States themselves. Furthermore, each and every Member State attended all meetings dedicated to this issue. Therefore, to some extent, the Member States are in a position to foresee any exceptional outcomes of the adjustment process.

6. What next…?

As this is an amendment to a Council Regulation, it is now up to the Member States to decide on the Commission's proposal by qualified majority. The European Parliament and the European Court of Auditors have to issue an opinion on it as well. If adopted, the amendment will produce its effects starting from 1 December this year (retroactively if needed).

Further information

EU budget: rule change to give more flexibility on exceptional adjustments to national contributions

EU budget sources of income

Source: European Commission