How It Works: EU Budget -- Who pays?
2,712 views · Published 19 November 2012 · 2:56 · Indexed 8 November 2026
Channel: European Parliament · 2012 · News & Politics
HOW IT WORKS Hello, my name is Bruce. I'm Belgian. Where does the money come from to fund the EU budget? The short, but not so simple, answer is mostly from you, the taxpayer. But as there is no EU tax as such, the question remains open to explanation. The EU's founding fathers wanted the Community to be financed by a proper tax of its own. One of the EU's predecessors, the European Coal and Steel Community was financed by a real community tax levied on the steel and coal industry. But despite regular calls for a community tax system to prevail, the EU is now almost entirely funded by contributions from the Member States. Part of the EU's revenue is called traditional own resources or TOR. They are mainly trade tariffs and customs duties from third countries. That is the foreign taxpayers' contribution to the EU to this day. Next, a percentage of VAT collected in the Member States is allocated to the budget, but gross national income-based own resources or GNI for short is the biggest post by far. Originally it was composed of Common Customs contributions. Then we had the VAT contribution. This was the original one. This was not enough so a resource was created, which was the one based on the gross national income of the Member States. In practice, this has increasingly become a direct contribution by Member States. Let's look at two Member States of similar population size, but very different financial muscle. The Netherlands is one of the richest EU countries, Romania one of the poorest. GNI contributions represent about 1% of gross national income. For the Netherlands that amounts to just over 40 billion euros in 2010. For Romania it's 11 billion. So the Dutch are shouldering about 4% of the entire EU budget, whereas the Romanian contribution amounts to just over 1%. Even though the system is hardly transparent for citizens, perceived unfair imbalances can be addressed by Member States directly in the budget negotiations. If the budget was financed mainly through a direct tax, and, let's say, if the Parliament had the power to set this tax, it would be much more difficult to discuss the excess contributions or not. That brings us to the eternal debate about the Member States that pay more into the EU than they get out and those that receive more than they pay in. But that's for another edition of How It Works. EuroparlTV video ID: a1e5f2c7-f01e-413d-9aaf-22b0ac7d8fae
