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Budget

2. How is the EU funded?

The budget revenue and expenditure of the EU is subject to three constraints:

• The treaties, which determine that the EU budget is not allowed to be in deficit, revenue has to cover the entire expenditure.
• A maximum spending limit agreed by the member states’ governments and parliaments. This is known as the own resources ceiling. It is currently set at 1.24% of the Union's gross national income (GNI) for payments made from the EU budget. This corresponds to approximately EUR 293 per EU citizen on average.
• A financial framework agreed by the European Parliament, the Council of Ministers and the European Commission, which controls the evolution of the EU budget by expenditure category over a set period of time. The current financial framework runs from 2007 to 2013.

The European Union has its own resources to finance its expenditure. Legally, these resources belong to the Union. Member states collect them on behalf of the EU and transfer them to the EU budget.

There are three kinds of EU’s own resources:

• Traditional own resources (TOR) consist of duties that are charged on imports of products coming from a non-EU state (roughly 15% of total revenue, in 2007).
• The resource based on value added tax (VAT) is a uniform percentage rate that is applied to each member state’s harmonised VAT revenue (also roughly 15% of total revenue, in 2007).
• The resource based on gross national income (GNI) is a uniform percentage rate (0.73%) applied to the GNI of each member state. Although it is a balancing item, it has become the largest source of revenue and today accounts for some 70% of total revenue (2007).

The budget also receives other revenue, such as taxes paid by EU staff on their salaries, contributions from non-EU countries to certain EU programmes and fines on companies that breach competition or other laws. These miscellaneous resources add up to around €1.3 billion, or about 1% of the budget.

Revenue flows into the budget in a way which is somewhat proportionate to the wealth of the member states. The UK, the Netherlands, Germany, Austria and Sweden, however, benefit from some adjustments when calculating their contributions. The adjustments and what each country in the end brings in the joint budget have traditionally caused heated debates among the governments.

On the other hand, EU funds flow out to the member countries in accordance with the priorities that the Union has identified. Less prosperous countries and regions receive proportionately more than the richer ones and most countries receive more than they pay in to the budget. The latest enlargements of the EU by 12 countries have changed the balance – more funds now flow to Eastern Europe and most of the EU15 are net payers to the EU budget, for the sake of cohesion and solidarity.