WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

image credit: Philipp Heimberger

By Philipp Heimberger

On 9 September, Philipp Heimberger, Senior Economist at wiiw and Head of the Research Group on Macroeconomics, presented a wiiw study on new sources of revenue for the EU’s next long-term budget at an event in Brussels hosted by the European Economic and Social Committee (EESC). Bringing together experts and policymakers, the panel discussion explored how the EU can finance its growing priorities and ambitions under the 2028-2034 Multiannual Financial Framework (MFF) – i.e. the EU budget – which is currently under negotiation.

Key points of the study:

• The study analyses the European Commission’s proposals for new own resources while also assessing alternative options.
• New sources of revenue could raise substantial additional funds for the EU budget.
• Taxes on activities involving crypto currencies, financial transactions, aviation and ultra-rich individuals could generate additional revenue while helping to tackle common European challenges, such as tax avoidance, climate change, financial instability and inequality.
• A stronger mix of genuine own resources could give the EU a more independent funding base and reduce its reliance on contributions from member states.

The EESC has rightly cautioned that the European Commission’s proposed increase in the size of the MFF is insufficient given the EU’s growing financing needs for the 2028-2034 period, such as for the funding necessary for defence and security, the green and digital transitions, and boosting Europe’s economic and technological competitiveness.

The problem with increasing national contributions

National contributions to the EU budget, which are largely based on gross national income (GNI), are financed mainly through taxes on income from labour and consumption. Increasing them is particularly difficult at a time when many member states are under substantial pressure to consolidate their public finances.

The EU’s heavy reliance on national contributions has long been criticised for turning debates over the EU budget into bargaining between net contributors and net recipients. Rather than focusing on common European priorities, negotiations often revolve around a simple question: how much does each member state pay in, and how much does it get back?

The European Commission’s plans for the 2028-2034 EU budget rely on a mix of revenue sources. These include transferring 30% of EU Emissions Trading System (ETS) revenues and 75% of future Carbon Border Adjustment Mechanism (CBAM) revenues to the EU budget, alongside new own resources, such as levies on electronic waste, tobacco and companies (CORE). The Commission also proposes adjustments to existing own resources, including a higher plastics-based contribution and a lower share of customs revenues retained by member states.

Overall, this package is expected to raise an additional EUR 58.2 billion annually. However, several member states have raised concerns because some of these revenues would otherwise accrue to national budgets.

Against this background, the study argues, it makes sense to look beyond the Commission’s current proposals and consider additional options for genuine EU own resources.

Revenue potential of new EU own resources

The wiiw study assesses both the new own resources proposed by the European Commission and a range of alternatives based on several criteria: their European dimension, their distributional effects, their potential to address environmental and societal externalities, and, of course, how much revenue they could generate.

The results show that several alternative instruments – including a financial transactions tax, a digital services tax, taxes on crypto transactions and online gambling, aviation-related levies and taxes on very wealthy individuals – could raise additional revenue while also helping to address a range of major European challenges, such as tax avoidance, financial market instability, climate change and rising inequality.

The amounts involved are substantial. At the lower end, the study finds that a tax on online gambling could generate around EUR 2 billion a year, while levies on crypto transactions could raise around EUR 3-4 billion. Aviation-related taxes could bring in around EUR 5-7 billion. A digital services tax could generate up to EUR 26 billion, depending on its design and tax base. And a tax on ultra-rich individuals could raise as much as EUR 40 billion a year.

Benefits of selected own-resource options

Regarding the specific proposed taxes, the study argues:

A financial transactions tax would not only generate additional revenue for the EU budget, as it would also make short-term and speculative trading in financial markets more expensive and could help to curb certain forms of destabilising financial activity. A coordinated European approach makes much more sense than a patchwork of national measures because it would make it much harder for financial market participants to relocate their activities to other EU countries.

A digital services tax is another option. It could provide an additional source of revenue for the EU budget while addressing one of the fundamental problems of the modern tax system: how to tax highly digitalised businesses.

US digital companies, for example, can generate substantial revenues in EU countries despite having little or no physical presence there – through online advertising, digital platforms or the commercial use of user data. Traditional tax systems therefore struggle to tax such profits, as they were designed for economies in which companies, customers and business activities have a physical presence in a particular country.

An EU-wide digital services tax could avoid the fragmentation created by separate national measures and generate substantial revenue for the EU budget. The European Commission has estimated that a 3% tax on digital services could raise around EUR 5 billion a year. Other estimates based on a broader tax base are substantially higher, reaching up to EUR 30 billion annually.

Another natural candidate is an aviation-related levy. Aviation receives preferential tax treatment compared with other forms of transport, including exemptions from VAT and the limited inclusion of international flights in carbon pricing. A levy linked to the CO₂ emissions generated by flights could therefore better reflect their environmental costs in ticket prices while raising revenue to fund European priorities.

The taxation of crypto-assets could also provide a new source of revenue for the EU budget. European institutions have discussed, in particular, a tax on crypto transactions or, alternatively, a tax on capital gains from crypto-assets.

Of course, there are challenges. The tax base for crypto-assets and transactions can fluctuate considerably, and some activity could be relocated outside the EU. However, a coordinated European approach would at least prevent activity from simply shifting between member states in response to differences in national taxation while also reducing tax competition within the EU.

A tax on ultra-rich individuals promises a particularly high revenue potential. One possible approach would be to introduce a minimum tax for individuals with a net wealth of more than EUR 100 million. This would ensure that the taxes paid annually by members of this group amount to at least a specified proportion of their wealth.

Such a tax would specifically target individuals whose effective tax burden is particularly low. At the same time, an EU-wide approach could help to limit tax competition between member states seeking to attract very wealthy individuals.

Policy conclusions

Further increasing the EU budget’s reliance on national contributions based on member states’ income levels – and ultimately financed largely through taxes on labour and consumption – risks undermining public support. If the EU budget is to expand in a financially and politically sustainable way, an agreement on additional own resources will be essential.

Taxes on particularly mobile tax bases appear especially suitable for implementation at the EU level. National approaches are often less effective because of tax competition and cross-border mobility. Some options – such as taxes on ultra-rich individuals or crypto transactions – are particularly interesting because they currently do not exist at the national level in this form. They could therefore strengthen EU revenues without reducing existing national tax revenues.

Ultimately, a better mix of genuine own resources could strengthen the EU budget, reduce reliance on national contributions, and distribute the burden of financing it more evenly across different parts of the economy.