EU Leaders Clash Over Next 7-Year Budget, Seek New Revenue Sources

European Union Leaders Settle Budget Clash

Brussels (Reuters) – European Union leaders are set to face off over the bloc’s budget on Friday. The first proposal for what the EU should spend in 2028-2034, and where it will get its funding from, has drawn sharp criticism.

The EU budget finances all of the EU’s policies, including support for farmers, equalizing living standards across the 27-nation bloc, new technology development, and student exchange programs. According to the European Commission’s proposal, the budget should be €2 trillion ($2.3 trillion).

Richer EU countries pay more into the budget than they receive, while poorer ones get more than they contribute. Every seven years, these two groups clash to reach a unanimous deal needed for the budget to pass.

The first compromise proposal by the Cypriot presidency last week reduced the Commission’s proposal by 2%, which was not enough for some and too much for others. It also increased funding within the budget for farmers and cohesion policies at the expense of research and innovation, angering countries trying to compete with China and the United States.

The Netherlands, a net contributor, was unhappy because it focused too much on agriculture and traditional spending rather than defense and modernization challenges. “The proposal currently on the table is really not good enough for the Netherlands,” Dutch Prime Minister Rob Jetten said.

Spain, a small but still net beneficiary, argued that the budget was too small and that spending on farmers and cohesion should be adjusted upwards for inflation. Spanish Prime Minister Pedro Sanchez stated, “The proposal … is even more inadequate than the one initially proposed by the European Commission, and we therefore certainly do not agree with it at all.”

Legally, EU governments must agree on the 2028-2034 budget by the end of 2027. However, due to upcoming elections in several countries next year, a deal should be struck by the end of 2026.

To balance national contributions from net payers while maintaining spending ambitions for net beneficiaries, new sources of revenue for the EU budget are needed. Proposed options include a share of cash from selling CO2 emissions permits to companies and a share of taxes on imported goods made in countries with weaker climate policies than the EU.

Other potential revenue streams include a tax on e-waste, tobacco excise duty, an annual lump-sum contribution from large companies operating in the EU, levies on extreme wealth, digital services, online gambling, and crypto asset capital gains. While leaders are unlikely to decide on these new revenue streams on Friday, they will indicate their preferences to prepare for a compromise proposal by the incoming Irish presidency in October.