The EU’s own resources

SUMMARY OF:

Decision (EU, Euratom) 2020/2053 on the system of own resources of the European Union

WHAT IS THE AIM OF THE DECISION?

The decision sets out how the EU’s annual budget is financed by:

amending some existing rules;
updating the own resources ceiling;
introducing a new income source (based on plastic packaging waste that is not recycled);
allowing the European Commission to borrow on capital markets for the sole purpose of tackling the COVID crisis.

KEY POINTS

The annual EU budget is financed by EU Member States from the following own resources:

traditional income sources: although they used to be the main source of income before 1970, these are now limited to customs duties on imports;
value added tax (VAT): a uniform rate of 0.30% is applied to each Member State’s harmonised VAT base, which is capped at 50% of its Gross National Income;
Gross National Income (GNI)*: a uniform rate on national GNI to be agreed annually (with annual lump sum reductions for Austria, Denmark, Germany, the Netherlands and Sweden);
plastic packaging waste: a uniform rate of €0.80 per kg is applied to the difference between the quantity of plastic packaging waste generated and recycled (with annual lump sum reductions for 17 Member States whose GNI is below EU average).

The maximum size of the annual budget (‘own resources ceiling’) is increased from 1.20% to 1.40% of EU GNI for payments* and to 1.46% for commitments* reflecting in particular the departure of the UK from the EU.

The following special conditions apply to measures to tackle the COVID-19 crisis through the European Union Recovery Instrument (EURI) — Regulation (EU) 2020/2094 (see summary):

the Commission may borrow up to €750,000 million (2018 prices) on capital markets;
the sum is divided into €360,000 million for loans and €390,000 million for expenditure;
repayments of the amount borrowed are made from the EU budget, starting before the end of the 2021-2027 multiannual financial framework (Regulation (EU, Euratom) 2020/2093 — see summary) and fully completed by 31 December 2058 at the latest;
the Commission administers the borrowing operations and keeps the European Parliament and the Council regularly informed about its debt management strategy;
the ceilings for payments (1.40%) and commitments (1.46%) shall be temporarily increased by 0.6% to cover the liabilities resulting from the borrowing, but not for any other expenditure;
the Commission may, as a last resort, ask Member States to make an extra financial contribution if necessary to cover its EURI obligations.

The revenues from the own resources are used to finance all elements of EU expenditure in its annual budget and any surplus during one year is carried over to the following one.

Member States are responsible for making available the own resources and also for collecting customs duties on behalf of the EU. Member States keep 25% of the traditional income sources to cover their costs.

The decision repeals Decision 2014/335/EU, Euratom.

FROM WHEN DOES THE DECISION APPLY?

It will apply retroactively from 1 January 2021 as soon as it is ratified by all 27 Member States.

BACKGROUND

The decision needs to be approved/ratified by all 27 Member States to take effect. It is part of a wider financial package that includes:

the multiannual financial framework 2021-2027 — Regulation (EU, Euratom) 2020/2093;
the interinstitutional agreement on budgetary discipline, on cooperation in budgetary matters and on sound financial management (see summary) containing a roadmap for introducing new own resources;
the Recovery Instrument — Regulation (EU) 2020/2094.

KEY TERMS

Gross National Income: gross domestic product plus net receipts from abroad of compensation of employees, property income and net taxes less production subsidies.

Payments: expenditure due in the current year from legal commitments made in that year or earlier.

Commitments: total cost of legal obligations (contracts, grants agreements/decisions) that may be signed in the current financial year.

MAIN DOCUMENT

Council Decision (EU, Euratom) 2020/2053 of 14 December 2020 on the system of own resources of the European Union and repealing Decision 2014/335/EU, Euratom (OJ L 424, 15.12.2020, pp. 1-10)