COMMISSION OF THE EUROPEAN COMMUNITIES 
COM (92) 81 final 
Brussels, 10 March 1992 
THE SYSTEM OF OWN RESOURCES 
Report presented by the Commission in accordance with 
Article 10 of the Decision on Own Resources 
CONTENTS 
THE SYSTEM OF OWN RESOURCES 
SUMMARY AND CONCLUSIONS 
I. INTRODUCTION 
II. THE WORKING OF THE PRESENT SYSTEM OF OWN RESOURCES 
1. The development of own resources and their structure over the 
period 1980 - 1992 
1.1 The size of the budget 
1.2 Traditional own resources 
1.3 VAT and GNP resources 
2. The development of own resources compared to the 1988 forecasts 
3. Burden-sharing 
3.1 Present situation 
3.2 Developments since 1988 
3.3 The evolution of relative prosperity 
III. FACTORS AFFECTING THE FUTURE VOLUME AND STRUCTURE OF 
OWN RESOURCES 
1. The size of the budget 
2. Some illustrations 
3. The structure of receipts 
3.1 Possible effects of the GATT round 
3.2 Possible effects of CAP reform 
- 3 -
IV. POSSIBLE CHANGES TO THE EXISTING SYSTEM OF OWN RESOURCES 
1. The fairness of the own resource system. 
1.1 Past views 
1.2 To what extent should the Community budget have a 
redistributive function ? 
2. Proposed changes to the own resource system 
2.1 More extensive use of the GNP resource 
2.2 Capping the VAT base at a lower level 
3. A new fifth Community own resource ? 
3.1 The political perception of the own resources in the Member 
States 
3.2 The need for true Community own resources 
3.3 Criteria for a possible fifth own resource 
3.4 The conditions for a fifth own resource 
THE SYSTEM OF OWN RESOURCES 
SUMMARY AND CONCLUSIONS 
This report reviewing the operation of the Community's system of own 
resources and suggesting improvements is submitted in accordance with 
Article 10 of the 1988 Own Resources Decision. 
Since 1980, when it represented approximately 0.7% of Community GNP, the 
size of the Community budget relative to GNP has expanded substantially, 
although it has risen only slightly since 1988, from 1.08% in 1988 to 1.15% 
of Community GNP in 1992 due mainly to slower growth in spending on 
agriculture in recent years. 
As to the structure of the various own resources in total receipts, the 
share of traditional own resources has declined as the budget has expanded, 
from about one half to under one third of total resources, although their 
size has fallen only slightly as a percentage of Community GNP. 
Correspondingly, the share of the resources based on the economic 
aggregates VAT and GNP has grown from around half of the total financing to 
over two-thirds. 
From 1988 to 1990, total spending was lower than had been expected in 1988, 
due mainly to the smaller-than-expected EAGGF spending, although in 1991 
and 1992, the budget was slightly larger than forecast in 1988. In 
addition to this, average economic growth to 1992 has been faster than 
projected in 1988, resulting in a larger VAT base. The overall consequence 
has therefore been that, up to 1992, recourse to the fourth (GNP) resource 
was much less than was forecast in 1988. 
Looking at the question of burden-sharing, it should not be forgotten that 
the distribution by country of budgetary receipts and expenditures gives 
only a very partial picture of the true costs and benefits of Community 
membership. 
With this caveat in mind, it should be noted that the present distribution 
by country of total own resources is out of line with GNP weights, even 
excluding traditional own resources and the UK abatement. The less 
prosperous Member States tend to pay more than their share in GNP, as do D, 
F and the UK, due to their high VAT bases. The small shares of B, DK and I 
are due to their relatively small payments of the VAT-based resource. 
The VAT resource, excluding the effect of the UK abatement, is generally 
regressive, making the resource out of line with the contributive capacity 
of Member States, with the poorer Member States tending to pay more than 
their GNP share, even after the corrective effect of capping. 
- 5 
The budgetary reform of 1988 did have redistributive elements coming from 
the doubling of the structural Funds (which, although redistributive in 
aim, are basically allocative in function), the introduction of the GNP 
resource and VAT capping, and the continuation of the UK abatement with the 
reduction in its financing by Germany. Nevertheless the full redistributive 
impact of the 1988 reforms are only now feeding through. Especially since 
the GNP resource still only makes up just over 20% of own resources, and 
the structural Funds have not yet reached their doubled level. 
For the future, the dynamic development of the Community budget is expected 
to continue. The further progress in the economic and political context of 
the Community will, even with the full application of the principle of 
subsidiarity, cause the size of the budget to increase as responsibilities 
in the areas of allocation, cohesion, stabilization and foreign policy are 
assigned to the Community level. 
In addition, the structure of own resources is also likely to change 
substantially in future years with the traditional own resources destined 
to decline further in importance as the effects of the GATT round and the 
CAP reform are felt. 
The advent of EMU and the realization of Political Union will further 
increase the need for fairness in the budget. Thus a priority for the 
changes which could be made to the system of own resources should be to 
address the issue of fairness between Member States. As set out in the 
Maastricht Protocol on Social and Economic Cohesion, greater account should 
be taken of the contributive capacity of individual Member States, and the 
regressive elements existing in the present own resources system should be 
corrected. 
The contributive capacity of Member States could be better taken into 
account by increasing the use of the GNP resource through a reduction in 
the VAT call rate of 0.4 percentage points. This would take the VAT ceiling 
down to 1% from the present 1.4%. Also, the regressive distortion of the 
VAT resource could be mitigated by introducing a lower level of capping of 
the VAT base at 50% of GNP compared to the present 55%. Both these measures 
would reduce the financial burden on the less prosperous Member States by 
shifting it towards B, DK and I, whose GNP share substantially exceeds 
their VAT share. These countries would nevertheless still retain a 
significant advantage in the own resource system. In addition, these 
changes would reduce significantly the size of the UK abatement. 
- 6 
For the institutional and the financial development of the Community, it 
would be desirable to introduce a new fifth own resource. It is important 
that a new own resource should be fair. Also it should be a genuine 
Community tax and thus come from a harmonized base. This harmonization must 
be justified on economic grounds. Moreover, politically, a fifth resource 
should be linked to increased budgetary responsibilities for the European 
Parliament. 
The Commission has examined various possibilities concerning taxes at the 
national level whose proceeds could be shared with the Community. However, 
it has found that, at present, no candidate exists in the tax system of the 
Member States with a base that is sufficiently harmonized. 
In the medium-term, the political development of the Community will make a 
new own resource necessary. The Commission will make every effort to 
promote the necessary conditions allowing the creation of such a resource. 
I. INTRODUCTION 
This report is submitted in accordance with Article 10 of thé Council 
Decision of 24 June 1988 on the system of the Communities' own resources 
(88/376/EEC, Euratom) which stipulates that "the Commission shall submit, 
by the end of 1991, a report on the operation of the system, including a 
re-examination of the correction of budgetary imbalances granted to the 
United Kingdom". 
The re-examination of the correction of the Uk's budgetary imbalance will 
be presented at a later date. 
The report also deals with the matter raised in the Commission's 
declaration in the Council minutes of 20 June 1988 that it will "examine, 
in the light of the functioning of the 1988 system of own resources, the 
case for presenting a proposal to put into effect the provisions of Article 
2.2 of the (abovementioned) Decision on Own Resources", i.e. a proposal for 
a new Community own resource to be presented to the Council for adoption 
according to the procedure of Article 201 (Council document 7161/88-Annex 
of 20 June 1988). 
The Report should also be seen in the light of the Protocol on Economic and 
Social Cohesion agreed at the Maastricht European Council in which the 
Commission and the Member States declared their intention to take greater 
account of the contributive capacity of individual Member States in the 
system of own resources and to examine means of correcting for the less 
prosperous Member States regressive elements existing in the present own 
resources system. 
- 8 -
II. THE WORKING OF THE PRESENT SYSTEM OF OWN RESOURCES 
1. The development of own resources and their structure over the period 
1980-1992 
1.1 The size of the budget. 
As a result of increased Community expenditure, the size of the 
Community budget rose from approximately 0.70% of Community GNP 
in 1980 to 1.08% in 1988, but has risen only slightly since then 
to reach an expected 1.15% in 1992 (see Graph 1). 
However, the various own resources increased at rates different 
from the global size of the budget implying a change in their 
structure. Thus whereas the traditional own resources amounted 
to almost 0.4% of Community GNP in 1980, covering one half of 
the financial requirements, their relative size had fallen to 
0.3% of GNP in 1988, remaining stable up to 1992, providing now 
less than one quarter of the Community budget's financial 
requirements. The resources based upon economic aggregates (VAT 
and GNP resources) made up the remainder with the VAT resource 
still by far the largest own resource, providing around 55% of 
receipts in 1992, against over 20% for the GNP resource (see 
Chart 1). 
1.2 Traditional own resources 
The traditional own resources (less than 25 % of total resource" 
in 1991) consist of agricultural levies (some 2% of tot? 
resources), sugar contributions (also approximately 2%) ar 
customs duties (almost 20% of total resources). 
Sugar contributions are related to the financially ^elf-
sustaining sugar scheme and make up a fairly constant share of 
own resources. Their level is actually geared to the financial 
requirements of that scheme due to storage costs and export 
restitutions. 
The other traditional own resources have been exposed to 
statutory, structural and cyclical developments. 
GRAPH 1 
Evolution of Own Resources as % of 
Community GNP 1980-1992 
1.2 
1 
0.8 -\ 
0.6 
0.4 
0.2 
0 '^JBB™"1 
i——i——i——r 
80 81 82 83 84 85 86 87 88 89 90 91 
Year 92 i 
o 
I 
GNP revenue 
VAT revenue &z HH Trad, own resources 
TOTAL OWN RESOURCES 
CHART 1 
Evolution of the Structure of Community 
Revenue : 1980 - 1992 
- total revenue • 100 -
100% 
75% 
50% H 
25% 
0% o 
I 
•H Trad, own resources 
I I GNP revenue VAT revenue 
Ell Adjustments, 
financial contributions and balances 
(1980-90 : Outcome; 1991-92 : Budget) 
i 
- 11 -
Agricultural levies reflect decisions taken within the framework 
of the CAP. As the period has seen a growing self-sufficiency of 
agricultural products, imports into the Community have declined 
and EC world market shares of agricultural imports have 
diminished. Concessions granted to various third countries have, 
furthermore, reduced annual receipts from this resource 
considerably. Variations in world market prices and currency 
changes have finally influenced the contribution from 
agricultural levies over the period. 
Customs duties have been subject to similar influences. Over the 
years, the various bilateral and multilateral trade negotiations 
have reduced the weighted average tariff rate to the present 
5.19% in 1989 (latest figures available). However, as a result 
of unilateral or mutual concessions, the actual incidence in 
1989 was 2.84%, a figure which varies from one year to another 
as a result of a changing import structure in value terms (e.g. 
higher prices of oil, subject to low tariffs, will reduce the 
overall incidence). Second, Community imports from third 
countries have fallen as a share of Community GDP from 12.6% in 
1980 to 9.5% in 1991. Thus imports, which amounted to 23.6% of 
world trade in 1980, dropped to 21.9% in 1990 (excluding intra-
Community trade). Finally, developments in world market prices, 
exchange rates and import propensities have influenced the 
overall outcome. 
1.3 VAT and GNP resources. 
The resources based upon economic aggregates (i.e. VAT and GNP) 
make up the balance (disregarding various minor receipts). They 
are expected to account for about 75% of the total budgetary 
resources required in 1992, against only 50% in 1980. 
The VAT base increased at a slightly faster rate (7.5%) than 
Community GNP (7.0%) from 1980to 1988, when the new Decision on 
Own Resources capped the VAT base for individual Member States 
at 55% of their GNP. The VAT capping method was chosen in 1988 
as a compromise following a Commission proposal to relate a 
fourth resource to the difference between the VAT and the GNP-
base in order to compensate for wide discrepancies among Member 
States between the two aggregates. "It was finally decided to 
use only GNP as a base for the fourth resource and to put a 
fixed ceiling on the size of the VAT base. (See Tables 1 and 2 
for the evolution of the uncapped and capped VAT bases as a 
percentage of GNP.) 
12 -
In 1992, through being capped, six Member States will have 
effectively switched their VAT base to the GNP aggregate 
(Greece, Ireland, Luxembourg, Spain, Portugal and the United 
Kingdom). However, the proportion of VAT receipts made up of 
the contribution of the capped Member States will still be 
higher than their GNP share because of the lower contributions 
of the non-capped countries. Nevertheless, the rate of increase 
of the Community VAT base will consequently become closer to 
that of the Community GNP. 
The uniform call rate applied to the VAT base in order to 
calculate budgetary contributions, gradually rose from 
approximately 0.7% in 1980 to 1.0% in 1984 and again to a 
maximum of 1.4% from 1986 onwards. The actual VAT rates differ 
between Member States because of the financing of the United 
Kingdom abatement and its impact upon VAT payments from other 
Member States. 
Until 1988, further budgetary requirements were covered by 
supplementary contributions adopted on an ad hoc-basis. Since 
then a fourth resource, introduced by the 1988 decision, has 
been calculated according to the Member States' GNP and serves 
as a budgetary buffer, which represents the main novelty of the 
1988 revised system. In 1990 the previous year's balance wiped 
out almost any need for the new GNP-based resource. However, in 
1991 the fourth resource financed 15.5% of the budget, 
corresponding to 0.16% of GNP, and in 1992 will reach over 20% 
of the budget. 
VAT Bases (uncapped) as a percentage of GNP : 1984-1992 Table I 
(*) 
Member 
States 
B 
DK 
D 
GR 
E 
F 
IR 
K3) 
L 
NL 
P(4) 
UK 
EUR12 1984 
(1) 
49.73 
46.26 
52.58 
51.63 
63.20 
41.38 
61.67 
48.26 
58.80 
46.79 1985 
(1) 
49.57 
46.58 
50.67 
52.02 
64.05 
40.55 
62.81 
49.19 
60.72 
46.67 1986 
(1) 
47.51 
46.87 
48.45 
45.72 
51.40 
62.45 
41.35 
63.86 
50.99 
59.49 
48.69 1987 
(1) 
47.88 
45.07 
49.31 
50.45 
52.63 
52.58 
60.06 
41.17 
64.75 
50.76 
59.07 
50.09 1988 
(1) 
47.86 
42.02 
48.69 
57.46 
55.18 
52.01 
65.71 
43.26 
67.48 
50.86 
60.67 
50.41 1989 
(1) 
46.47 
41.39 
48.36 
61.54 
57.20 
51.54 
62.47 
41.29 
60.64 
50.96 
78.52 
58.98 
50.64 1990 
(1) 
45.71 
41.29 
49.37 
64.19 
51.40 
51.18 
60.42 
41.83 
60.10 
51.47 
75.91 
55.40 
50.00 1991 
(2) 
46.58 
42.76 
48.58 
56.45 
52.26 
52.65 
67.23 
40.64 
65.93 
50.26 
67.57 
60.79 
50.49 1992 
(2) 
45.85 
41.23 
52.56 
59.88 
56.07 
52.43 
64.42 
40.94 
64.36 
50.89 
74.55 
57.89 
51.51 
(1) Actual bases, latest revision 31/07/91 
(2) Budgetary bases 
(3) Revised estimates for 1988,1989,1990 and 1992 
(4) Excluding Madeire and Açores 
VAT Bases (capped) as a percentage of GNP : 1984-1992 Table II 
(*) 
Member 
States 
B 
DK 
D 
GR 
E 
F 
IR 
I (3) 
L 
NL 
P(4) 
UK 
EUR12 1984 
(1) 
49.73 
46.26 
52.58 
51.63 
63.20 
41.38 
61.67 
48.26 
58.80 
46.79 1985 
(1) 
49.57 
46.58 
50.67 
52.02 
64.05 
40.55 
62.81 
49.19 
60.72 
46.67 1986 
(1) 
47.51 
46.87 
48.45 
45.72 
51.40 
62.45 
41.35 
63.86 
50.99 
59.49 
48.69 1987 
(1) 
47.88 
45.07 
49.31 
50.45 
52.63 
52.58 
60.06 
41.17 
64.75 
50.76 
59.07 
50.09 1988 
(1) 
47.86 
42.02 
48.69 
55.00 
55.00 
52.01 
55.00 
43.26 
55.00 
50.86 
55.00 
49.90 1989 
(1) 
46.47 
41.39 
48.36 
55.00 
55.00 
51.54 
55.00 
41.29 
55.00 
50.96 
55.00 
55.00 
49.45 1990 
(1) 
45.71 
41.29 
49.37 
55.00 
51.40 
51.18 
55.00 
41.83 
55.00 
51.47 
55.00 
55.00 
49.55 1991 
(2) 
46.58 
42.76 
48.58 
55.00 
52.26 
52.65 
55.00 
40.64 
55.00 
50.26 
55.00 
55.00 
49.33 1992 
(2) 
45.85 
41.23 
52.56 
55.00 
55.00 
52.43 
55.00 
40.94 
55.00 
50.89 
55.00 
55.00 
50.61 
(1) Actual bases, latest revision 31/07/91 
(2) Budgetary bases 
(3) Revised estimates for 1988,1989,1990 and 1992 
(4) Excluding Mateire and Açores 
- 15 
2. The Development of own resources compared to the 1988 forecasts. 
The comparison between actual outturns and the projected evolution of 
own resources as envisaged at the time of adoption of the Own 
Resources Decision in 1988, shows a slower-than-expected increase in 
expenditure up to 1990 and a larger rise in the underlying VAT and 
GNP base. By 1992, however, the level of expenditure has reached 
what was forecast in 1988 (see Chart 2). 
Thus, total expenditure in 1990 corresponding to 1.0% of GNP, was 10% 
(or 5.3bn ecus) lower than foreseen (1.1% of GNP), basically due to 
smaller EAGGF payments. Taking into account budgetary transfers from 
1989, the total own resources required to finance the budget in 1990 
were more than 12% (or 9.5bn ecus) below the outcome expected in 1988 
(or 0.9% of GNP against 1.1%). At the same time, stronger economic 
growth boosted the VAT base in 1990 to a level some 5% above the size 
then envisaged, adding supplementary finance (or 1.6bnecus) to the 
budget. As a result the fourth GNP resource, introduced as part of 
the new Decision, was'not used at all in 1990. 
For the years 1991 and 1992, however, total expenditure will rise 
once more, exceeding 1988 expectations, with EAGGF spending 
increasing again. Nevertheless, recourse to the fourth (GNP) 
resource will remain less than expected in 1988 due to the expanded 
VAT base caused by the strong economic growth since 1988. 
CHART 2 
Revenue Outcome as % of 1988 forecast 
(1988-1992) 
88 - index 1988 forecast • 100 -
89 90 
Year 91 92 I 
Trad, own resources 
GNP and balances VAT and balances 
• TOTAL OWN RESOURCES 
• TOTAL EXPENDITURE 
(1988-90 : Outcome; 1991-92 : Budget) 
17 -
The analysis above shows that the discrepancy between the actual 
outcome and the development expected in 1988 has been a result of 
cyclical effects both on the expenditure side and on the receipts 
side. In contrast to other Community expenditure, the EAGGF 
guarantee spending depends on world agricultural price developments, 
Community output and agricultural exports. Since EAGGF guarantee 
payments make up more than half of total Community budgetary 
expenditure, any modification of the underlying parameters will lead 
to considerable changes in overall spending. 
In a similar way, the development of own resources reflects the 
economic environment. A rise in economic activity will thus reduce 
the need to call upon the fourth (GNP) resource by increasing the 
size of the VAT base and hence total VAT receipts (and vice-versa). 
It will as a consequence also both modify the structure of budgetary 
receipts and the relative contributions of Member States, depending 
upon their individual shares of the different resources. 
3. Burden-sharing 
3.1 Present situation 
This section looks at the fairness of the present system of own 
resources. 
The distribution by country of origin of the Community's total 
own resources, excluding traditional own resources and the 
effect of the UK abatement, is presented in Chart 3. It compares 
the share of resources coming from each country with the share 
of GNP of each country, representing the contributive capacity 
of the Member States. It shows that the receipts from each 
Member State are out of line with the GNP key. This is 
especially true for GR, E, IRL, P and UK which have capped VAT 
bases. Conversely, B, DK and I pay relatively little of the VAT 
based resource. 
Chart 4 presents the distribution of total receipts from each 
Member State including traditional own resources and the UK 
abatement. It shows how the abatement aids the UK, though it is 
designed to correct a problem which is largely on the 
expenditure side. It also shows the impact of the large 
traditional own resource shares of B and NL explained below. 
CHART 3 
Shares by Member State of 
Total Own Resources 
(excluding TORs and UK abatement, 1992) 
in % 
oo 
i 
ÊB GNP key Total own resources 
CHART 4 
Shares by Member State of 
Total Own Resources 
(including TORs and UK abatement. 1992) 
in % 
B DK D GR IRL LUX NL I 
UK 
Wm GNP key Total own resources 
- 20 
An analysis by individual own resource is presented in the 
following sections. 
3.1.1 Traditional Own Resources 
Traditional own resources are largely receipts from tariffs on 
imported goods and similar duties on imported agricultural 
products. They are collected for the Community at the port of 
entry by each Member State. 
In order to look at the distribution by country of the own 
resource system, it is necessary to estimate the resources 
coming from each country. While this is fairly clear for the 
VAT- and GNP-based resources, it raises considerable theoretical 
problems for the traditional own resources, because the act of 
collection in (and hence actual payment to the Community budget 
by) one particular country does not mean that the economic 
burden of that resource has been effectively carried in that 
country. This would not be the case without the EC. 
This is particularly evident in the first place from the impact 
of the 'Rotterdam Effect'. Here, due to the effects of intra-
Community trade, during which goods are often imported from 
third countries and then re-exported to another Community 
country, the collection of the Community resource (the customs 
duty) may well take place in one country with the economic 
burden being carried in another country. 
21 
It can also be argued that there are methodological problems 
linked to the fact that some countries traditionally import a 
larger share of GNP than others and thus transfer a relatively 
larger share of traditional own resources to the Community 
budget. However, this does not necessarily mean that the 
economic burden is being disproportionately borne by such 
countries. In a unified market, an import tariff will cause 
prices for that good to rise throughout the market, even though 
perhaps only a relatively small amount of imports in one 
particular area is observed. Thus, the economic costs, as well 
as the perceived economic benefit in terms of employment 
creation may be spread throughout the market. 
These methodological problems cast considerable doubt on the 
validity of the method of using budgetary receipts to measure 
the distribution of the burden by country of the traditional own 
resources. Thus, the figures presented below are probably 
misleading and should be treated therefore with the appropriate 
caution. 
Chart 5 presents the distribution of traditional own resources 
by Member State according to budgetary receipts. The Rotterdam 
Effect may well explain the fact that the Netherlands, Ireland 
and Belgium pay over twice of their proportional share (relative 
to GNP) of traditional own resources (B and NL due to their 
ports, IRL due to its intensive use of intermediate goods). 
Portugal is also the source of a relatively large amount of 
traditional own resources, largely due to high levels of cereals 
imports. Similarily, the UK is a large importer, especially of 
food products, and thus is the source of a relatively large 
proportion of traditional own resources. 
CHART 5 
Shares by Member State of 
Traditional Own Resources 
(1992) 
in % 
/ 7 
GNP key Trad. Own Resources 
23 -
3.1.2 VAT Resource 
The VAT-based own resource is collected from the Member States 
based on a notional, harmonized VAT base. It is not, as would be 
theoretically possible, collected as a share in the VAT 
effectively paid on each purchase. 
The VAT base is capped at 55% of GNP. The effect of capping 
makes the VAT resource base evolve similarly to the GNP resource 
for the countries that are capped (in 1992 F, GR, IRL, L, P, 
UK), although the capped VAT key still leaves an advantage to 
those countries with a low VAT base as a percentage of GNP. 
Chart 6 shows the distribution of the capped VAT base compared 
to GNP. These are not in line because VAT bases, both capped and 
uncapped, differ widely between countries as a percentage of GNP 
(see Tables 1 and 2 above). The less prosperous countries (GR, 
E, IRL, P) all have relatively high VAT bases and are therefore 
disadvantaged. Other countries (I, DK and B in particular) pay 
relatively little VAT-based resource contributions compared to 
their GNP. 
The main reasons for this appear to be differences in the share 
of consumption and savings in GNP. Countries with high levels of 
consumption or low levels of saving as a proportion of GDP tend 
to have high VAT bases. This applies also to countries with 
high levels of investment, but financed by capital imports (e.g. 
less prosperous countries with high growth). 
Since experience shows that it is likely to be less prosperous 
countries or countries at a low point in conjunctural terms that 
will have a high share of consumption and low savings, it can be 
said that the VAT resource is unfavourable for these countries. 
The VAT resource is therefore regressive compared to the GNP 
key, although capping of the base has helped mitigate this. 
Chart 7 shows the distribution of VAT resource payments by 
Member State. The actual distribution of VAT payments by country 
is distorted compared to the capped VAT base (presented in Chart 
6) by the impact of the UK abatement (which is largely financed 
from the VAT resource). 
CHART 6 
Shares by Member State in 
Capped VAT base 
(1992) 
in % 
B DK D GR rv> 
IRL I LUX NL UK 
M GNP key Capped VAT base 
in % CHART 7 
Shares by Member State of 
VAT Resource 
(Including UK abatement. 1992) 
35 
30 H 
25 
20 H 
15 
10 
5 
0 
LUX NL 
GNP key VAT resource 
- 26-
Further problems with the VAT resource relate to the effects of 
the underground economy. The VAT base will be biased in favour 
of countries with poor collection systems. Also, it could be 
distorted by the impact of inferior statistical methods, such as 
out-dated statistical surveys, etc. 
3.1.3 GNP Resource 
The fourth resource is a contribution in proportion to the GNP 
key. The GNP is used rather than GDP because it better reflects 
the prosperity of the country concerned. 
Chart 8 shows the distribution of GNP payments by country. As 
can be seen the actual payments are proportional to the GNP key 
apart from the effects of the small portion of the UK abatement 
which is imputed to the GNP resource for countries with low VAT 
bases. 
The GNP resource can be distorted with respect to relative 
prosperity due to the methods for taking into account unreported 
economic activity (the underground economy), which may be more 
prevalent in some countries than in others. Also, as is the case 
for the VAT resource, inferior statistical methods may falsify 
the GNP figures used to establish the base. 
It could be argued that a better measure of relative 
contributive capacity between countries is GNP in terms of 
purchasing power standard (PPS). This measure attempts to scale 
GNP in terms of a standard basket of goods, rather than in money 
terms. Effectively, it excludes changes in exchange rates that 
are not matched by inflation differentials. Chart 9 presents the 
actual GNP key used for the fourth resource compared to GNP in 
PPS. This chart shows that, if the PPS standard is seen as a 
better measure, then the present GNP base is slightly 
progressive since the GNP base is generally below the GNP in PPS 
for poorer Member States and above it for richer Member States. 
CHART 8 
Shares by Member State of 
GNP Resource 
(including UK abatement, 1992) 
in /o 
B DK D 
MÉ GNP key GNP resource 
CHART 9 
200 
150 
100 
50 
0 Relative Prosperity 
-Index per head In 1992 (EC = 100) -
oo 
B DK D GR E F IRL I LUX NL P UK 
GNP PPS GNP 
- 29-
3.2 Developments since 1988 
The principal redistributive elements of the 1988 budgetary 
reform came through the effects of doubling of the structural 
Funds (which are basically allocative in nature), the 
introduction of the fourth own resource based on the GNP key, of 
VAT capping and of the continuation of the UK abatement system 
together with a reduction in the share of Germany in its 
financing. The factors determining the question of redistri­
bution now have evolved since 1988. 
The size of the budget has increased significantly since 1988. 
As its size has grown so has its potential for redistribution on 
a scale which has macroeconomic effects in countries that are 
relatively small or poor. This growth in the Community budget 
is likely to continue as the Community develops. It is 
therefore important to see that it is funded fairly. 
Nevertheless, account should be made for the fact that it is 
only now that the full redistributive impact of the 1988 reforms 
are feeding through into the budget. The fourth resource in 1992 
will still only make just over 20% of own resources and the 
structural Funds have yet to arrive at their doubled level. 
3.3 The evolution of relative prosperity 
Tables 3 and 4 show the evolution of relative prosperity in the 
Community since 1980, Table 3 based on GNP in terms of ecus, 
Table 4 in terms of purchasing power standard (PPS). 
Looking at Table 3, the countries which have improved their 
positions substantially since 1988 are Spain and Portugal, and, 
to a lesser extent, Italy, moving respectively from 60 %, 28 % 
and 98 % of the Community average to an expected 74 %, 41 % and 
106 % in 1992. The positions of Greece and Ireland, on the other 
hand, have improved only slightly. The relative positions of 
Denmark, Germany (even without the effects of reunification), 
France, the Netherlands and the UK have all fallen somewhat 
since 1988. 
30-
Table 4 gives relative prosperity in terms of PPS. With the 
exception of Luxembourg, the PPS indicator shows rich and poor 
countries closer to the EC average than under the ecu indicator. 
Prosperity in the Netherlands and the UK is above the Community 
average in terms of PPS, but below in terms of ecus. 
TABLE 3 
21/11/1991 
CROSS NATIONAL PRODUCT AT CURRENT MARKET PRICES PER HEAD OF POPULATION 
(Series including West Germany) ECU,EUR12 = loo 
1980 
1981 
1982 
1983 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 
1992 
1993 B 
120.7 
112.5 
103.2 
100.9 
100.7 
101.4 
103.7 
105.2 
102.5 
102.2 
103.6 
102.5 
102.3 
102.2 DK 
128.0 
125.6 
126.9 
132.2 
134.1 
138.3 
143.1 
144.2 
139.2 
133.3 
132.7 
129.0 
128.4 
127.9 WD 
134.6 
128.5 
129.4 
134.1 
133.4 
130.8 
136.3 
138.1 
133.6 
130.4 
130.8 
131.2 
130.5 
128.7 GR 
43.5 
45.4 
48.8 
45.0 
44.9 
42.0 
36.1 
34.2 
35.6 
35.9 
35.2 
35.6 
35.6 
35.2 E 
57.7 
56.4 
56.7 
50.6 
53.2 
54.0 
54.9 
56.4 
59.7 
65.1 
68.0 
70.5 
71.9 
73.4 F 
125.7 
125.2 
122.9 
119.9 
118.6 
120.1 
122.1 
119.4 
115.9 
114.4 
114.0 
110.7 
109.2 
107.8 IRL 
55.2 
58.8 
61.6 
60.4 
59.5 
59.8 
58.8 
57.1 
55.4 
56.6 
58.4 
56.6 
55.9 
55.1 I 
81.6 
83.5 
85.7 
91.3 
94.7 
94.0 
96.9 
98.3 
97.7 
100.3 
101.2 
102.4 
103.4 
104.5 J-
153.9 
153.0 
159.6 
165.9 
168.1 
169.4 
172.9 
168.8 
165.6 
169.0 
168.0 
166.9 
166.2 
164.8 NL 
121.2 
114.8 
116.9 
116.5 
113.3 
110.9 
111.3 
108.7 
104.1 
100.9 
101.0 
100.0 
97.6 
96.2 P 
26.7 
29.0 
28.1 
25.8 
24.6 
25.5 
27.2 
27.5 
28.3 
30.5 
33.0 
37.0 
40.0 
41.8 UK 
96.8 
105.5 
104.9 
102.6 
100.8 
102.9 
91.5 
90.6 
98.8 
98.1 
94.1 
93.8 
94.1 
95.3 EUR12 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
(series including a unified Germany) DSt 1 0 92 112 B7VCN0R 
1991 
1992 
1993 B 
105,8 
105,1 
104,6 DK 
133,2 
131,8 
130,9 D 
115,0 
116,1 
115,8 EL 
36,7 
36,6 
36,0 £S 
72,7 
73,8 
75,1 F 
114,2 
112,1 
110,4 IRL 
58,4 
57,4 
56,4 I 
105,7 
106,2 
107,0 L 
172,7 
170,2 
168,9 NL 
103,2 
100,3 
98,4 P 
38,2 
41,1 
42,8 UK 
96,8 
96,7 
97,6 EC 
100 
100 
100 
TABLE 4 
21/11/1991 
CROSS NATIONAL PRODUCT AT CURRENT MARKET PRICES PER HEAD OF POPULATION 
(series including West Germany) PPS EIJRIZ,- EURI2 = 100 
1980 
1981 
1982 
1983 
1984 
1985 
1986 
1987 
1988 
1989 
1990 
1991 
1992 
1993 B 
103.2 
102.5 
102.9 
101.8 
102.0 
100.3 
99.5 
99.4 
100.1 
100.3 
101.3 
102.0 
102.4 
102.7 DK 
105.0 
104.0 
106.0 
107.5 
109.2 
111.3 
112.5 
110.1 
107.0 
104.7 
104.1 
105.4 
107.1 
108.8 WD 
114.0 
114.3 
112.9 
113.7 
115.5 
115.5 
115.1 
114.0 
113.4 
113.3 
114.3 
115.8 
114.7 
113.2 GR 
60.0 
59.5 
58.8 
57.1 
56.6 
56.5 
55.4 
53.8 
54.1 
53.7 
52.6 
52.2 
51.8 
51.6 E 
73.5 
72.5 
72.7 
72.4 
71.9 
71.9 
72.4 
74.3 
75.2 
76.5 
77.4 
78.7 
79.6 
80.4 F 
112.0 
113.1 
114.4 
112.7 
111.3 
110.4 
110.0 
109.0 
108.6 
108.7 
108.7 
108.9 
109.0 
109.1 IRL 
61.5 
62.6 
61.5 
59.3 
58.9 
58.2 
56.9 
58.4 
57.2 
58.6 
61.7 
61.8 
61.5 
61.6 I 
102.6 
103.2 
102.7 
102.0 
102.6 
102.7 
102.5 
102.9 
103.2 
103.0 
102.2 
102.3 
102.3 
102.6 L 
143.9 
148.2 
164.9 
168.3 
169.4 
173.3 
173.7 
166.5 
168.5 
175.5 
169.5 
170.6 
171.2 
173.1 ML 
110.6 
109.5 
107.2 
107.0 
107.3 
107.6 
106.0 
103.6 
101.7 
102.2 
103.2 
104.1 
103.0 
102.3 P 
53.5 
53.4 
53.0 
51.9 
49.0 
49.3 
50.8 
52.4 
52.7 
54.0 
55.5 
56.4 
56.5 
56.4 UK 
101.1 
100.4 
101.8 
104.3 
104.0 
104.9 
106.1 
107.4 
108.0 
107.0 
105.3 
101.8 
102.2 
102.9 FUR 12 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
100.0 
DS: 1 0 212 7.12 B7VCN0R 
1991 
1992 
1993 B 
105,5 
105,4 
105,5 DK 
109,0 
110,3 
111,6 D 
101,7 
102,3 
102,0 EL 
54,0 
53,3 
52,9 ES 
81,3 
82,0 
82,6 F 
112,6 
112,2 
112,0 IRL 
63,9 
63,3 
63,2 I 
105,8 
105,4 
105,3 L 
176,5 
176,8 
177,7 NL 
107,6 
106,0 
105,0 P 
58,3 
58,2 
58,0 UK 
105,2 
105,2 
105,6 EC 
100 
100 
100 (series including a unified Germany) 
- 33 
III. FACTORS AFFECTING THE FUTURE VOLUME AND STRUCTURE OF OWN 
RESOURCES 
The evolution of the size of the budget will be decided in the context of 
the renewal of the Interinstitutional Agreement. Nevertheless, there are 
various factors at work which can already be discerned. 
1. The size of the budget. 
The economic and political context in which the Community is 
functioning has changed considerably over the past few years and can 
be expected to change further. In particular, the Community budget 
must therefore be viewed over the next five years in the context of 
the moves towards Economic and Monetary Union and European Political 
Union. 
On the economic side, this means that the existence of .a single 
market can be assumed, though no doubt with some imperfections; that 
intra-Community exchange rates will remain stable; and that national 
budget policies will be coordinated. Nevertheless, even with the 
full application of the principle of subsidiarity, it can be expected 
that further economic responsibilities in the areas of allocation, 
cohesion and stabilisation will be assigned to the Community level. 
These are likely to add to pressure on the resource side of the 
Community budget. 
On the political side, the Community's foreign policy role is being 
reinforced. This is also likely to have implications for the budget. 
- 34 
2. Some illustrations 
As an illustration, the additional resources that would accrue to the 
Community under different hypotheses of the global own resource 
ceiling in percentage of GNP as well as the maximum potential 
increase in actual expenditure (i.e. not commitment appropriations) 
allowed for by these ceilings are given below. 
Based upon a 2.5% annual GNP growth (at 1992 prices) total own 
resources might increase as shown in the following table : 
Own 
resource 
ceiling 
% GNP 
1.2 
1.25 
1.3 
1.35 
1.4 
1.5 
p.m. GNP Expenditure 
1992 
ECU bn 
63.7 
63.7 
63.7 
63.7 
63.7 
63.7 
54928 Maximum 
Expenditure 
1997 
ECU bn 
72.7 
75.8 
78.9 
82.0 
85.1 
91.4 
62149 Maximum 
available 
margin 
ECU bn 
9.0 
12.1 
15.2 
18.3 
21.4 
27.7 Maximum 
Expenditure 
growth 93-97 
% pa 
2.7 
3.5 
4.4 
5.2 
6.0 
7.5 
- 35 -
3. The structure of receipts 
3.1 Possible effects of the GATT round. 
In the present CAP framework, receipts from agricultural levies 
depend upon the international price developments and exchange 
rates, and may thus vary considerably over a period. A reduced 
level of agricultural protection as discussed in the GATT 
context and transcription of levies into tariff rates, subject 
to reductions similar to those proposed for industrial 
commodities, will certainly diminish the revenue from this 
source. Elasticities are probably very low so that no 
compensatory rise in import volumes will take place, unless 
Community production falls. 
On the other hand, import elasticities may be of some importance 
for non-agricultural commodities, and any initial cut in tariffs 
could therefore be partly compensated for by higher import 
volumes. 
During the present GATT round, the Community has envisaged 
cutting the tariffs by approximately 30%, reducing the weighted 
average rate from 5.19% to 3.63%. The cut would take place over 
a transitional period of five to eight years and the impact on 
trade flows and growth patterns would thus be spread over the 
corresponding period. Such a reduction would certainly have a 
considerable impact upon the structure of own resources, raising 
the call rate for the GNP-based resource. 
3.2 Possible effects of CAP reform. 
CAP reform is aimed at bringing oversupply under control by 
reducing the price support scheme for agriculture. 
It is still premature to make precise estimates of the impact of 
the CAP reform on agricultural levies. At present cereals trade 
accounts for almost 40% of total levies. As an illustration, a 
reduction in cereal prices by 35% and in prices on livestock 
products by 15% would reduce levies by around 680m ecus. Thus it 
cannot be excluded that agricultural levies, at present some 
1.2bn ecus, might be more than halved, so increasing the need to 
call upon other resources. 
- 36 -
IV. POSSIBLE CHANGES TO THE EXISTING SYSTEM OF OWN RESOURCES 
In this chapter, possible changes to the structure of the own resources 
system are examined, leaving the question of the global ceiling on own 
resources aside for the time being. First, the question of fairness in the 
own resource system is addressed, particularly in the light of the 
Maastricht Protocol on Economic and Social Cohesion in which the Commission 
and the Member States declare their intention to take greater account of 
the contributive capacity of individual Member States in the system of own 
resources, and to examine means of correcting for the less prosperous 
Member States regressive elements existing in the present own resources 
system. In Section 2 corresponding proposals are put forward. Then, in 
Section 3, the possibility of a new fifth own resource is investigated. 
1. The Fairness of the Own Resource System 
As has been shown in Section II.3, the present distribution of own 
resource receipts into the Community budget is out of line with GNP 
weights, even excluding the effects of traditional own resources and 
of the UK abatement. 
Nevertheless, the budget should be seen as a whole, not just from the 
resource side. The following sections investigate the various 
arguments for and against the use of the the budget as a whole as a 
vehicle for redistribution. 
When looking at the fairness of the Community budget in general, it 
is necessary to be well aware of the methodological difficulties of 
making a fair judgement of the true distribution of costs and 
benefits coming from Community membership. Not only are there the 
measurement problems mentioned above (Section II.3) in the case of 
budgetary own resources, but, on the expenditure side it must not be 
forgotten that many of the benefits coming from Community policies 
are in the form of resources transfers not directly linked to 
expenditure (due to tariffs, rules and regulations for example having 
a differential regional impact). Also there are large non-budgetary 
benefits coming from policies such as trade liberalization, which 
should also be taken into account since they may benefit some Member 
States more than others. 
- 37 -
1.1 Past Views 
Views on the distributive role of the Community budget differ. 
The MacDougall Report of April 1977 set out a series of 
considerations that argue, prima facie, in favour of an emphasis 
on redistribution between Member States of the Community, 
namely: 
the explicit political objective of economic convergence; 
the desire to avoid excessive general migration from poor 
areas; 
the desire to avoid excessive migration of more mobile, 
highly trained manpower; 
the danger that, as economic integration proceeds, there 
will be increasing pressure for real wage equality in spite 
of productivity differences; 
the creation of a degree of convergence in productivity 
levels, and automatic compensation for short-term relative 
changes in income. 
The MacDougall Group saw the Community concerned more to help 
economically weaker member states with acute economic problems 
(unemployment, trade, exchange rate and budget) than to equalize 
longer-run differences in living standards. The Group therefore 
came to the tentative conclusion that a large part of payments 
made to Member States is likely to be conditional. The 
MacDougall Group did see a possible place for some limited 
unconditional redistribution through, for example, a typical 
federal equalization mechanism. 
The Padoa-Schioppa Report of April 1987, however took the view 
that "Since the Community is a political entity whose content is 
principally of an economic nature, it is inevitable for it to be 
concerned with the broad balance of economic advantages that it 
offers to its Member States" (Sec. 13.1, p. 115). It made the 
point that "budgetary reforms should, inter alia, be designed to 
ensure to the highest possible degree an automatically equitable 
Community budget" (Sec. 13.6, p. 136) Also, "Progressivity on 
the revenue side of the Community budget would alleviate in some 
degree the need for the expenditure functions of the budget to 
mix allocative and distributive characteristics." (Sec. 13.6, p. 
136) 
- 38 -
1.2 To what extent should the Community budget have a 
redistributive function? 
The 1988 budgetary reforms (see Chapter II) implicitly 
acknowledged that the Community budget should have 
redistributive effects. The doubling of the structural Funds was 
its main redistributive element. However, the structural Funds, 
although their goal is redistributive, are channelled through 
the allocative mechanism of the budget, which is the most 
efficient in promoting the desired economic convergence. The 
introduction of the fourth own resource based on GNP and the VAT 
capping was not intended as an instrument for progressive 
redistribution of the own resource burden, but in order to 
better take into account the contributive capacity of Member 
States by moving towards a proportional system which would 
remove some of the unfairness of the existing own resource 
system. Similarly, the UK abatement is clearly designed to 
correct evident unfairness, rather than as a positive mechanism 
of redistribution. The 1988 reforms thus implicitly recognized 
redistribution only in these restricted senses. 
Whereas, mature federations do tend to have strongly 
redistributive central budgets, the Community, even in view of 
EMU, has not moved to comparable levels of institutional and 
political centralization and of solidarity between individuals. 
It would" therefore be wrong to use such examples as arguments 
for adapting the Community budget along similar lines. 
On the other hand, the Community budget is getting larger and 
the need for economic and social cohesion is more apparent as 
the Community advances. This need was explicitly recognized in 
the Maastricht Protocol on Economic and Social Cohesion. 
It is through the allocative function of Community policies that 
the main redistributive effects of the budget should take place. 
This implies that any redistributive efforts should be 
concentrated on the expenditure side of the budget. In this way 
the Community can directly contribute to the efforts of Member 
States to improve their economic position. Many Community 
policies are geared to economic and social cohesion, e.g. the 
structural Funds, and these give the Community finances a large 
measure of equity. Chart 10 shows the contribution in terms of 
resource transfer that the structural Funds have made to member 
countries' GNP since 1988. The new Cohesion Fund will reinforce 
these efforts. The redistributional aspect of this expenditure 
is not in doubt. 
CHART 10 
Distribution by Member State of 
Structural Funds 
(in % of GNP, 1987-1992) 
% Of GNP 
3,5 
3 -
2,5 -
2 -
1,5 
1 
0,5 H 
0 â 
m^u=0^-r^F^\ m 
r^rA M>-7-\ -MIL 
B DK D GR IRL NL UK EC 
Av. 87-89 H 1990 199 1992 
- 40 -
On the resource side, the UK abatement and the reduction in the 
German share of its financing are already examples of adjusting 
the resource side of the Community budget for reasons of 
redistribution. They are designed to correct existing budgetary 
imbalances, rather than to bring about ex ante redistribution. 
2. Proposed changes to the own resource system 
The main problem of unfairness in the budget is the regressive nature 
of the VAT resource. This concerns the tendency for the less 
prosperous countries to pay more than their fair share on the VAT 
resource. Spain, Greece, Ireland and Portugal pay at the capped rate 
of 55% of VAT. In particular, Denmark, Italy and Belgium pay less. As 
noted above (Section II), this is basically due to the tendency of 
less prosperous countries to consume more as a proportion of GNP than 
richer countries. 
This unfairness was implicitly recognized in the Maastricht Protocol 
on Economic and Social Cohesion. In line with the Protocol, the 
Commission therefore proposes making more extensive use of the GNP 
resource in order to take greater account of the contributive 
capacity of Member States. It also proposes lessening the distortions 
of the VAT resource in order to help correct its regressive 
influence. 
2.1 More extensive use of the GNP resource 
In order to bring the own resources system closer into line with 
the contributive capacity of the Member States, the Commission 
proposes increasing the use of the GNP resource at the expense 
of the VAT resource. While this effect is already inherent in 
the present own resource system, since the VAT ceiling is 1.4% 
and increases in the budget relative to the VAT base are 
financed via the GNP resource, a fairer distribution of the 
burden of resource payments could be achieved through a 
reduction in the VAT call rate by 0.4 percentage points. This 
would reduce the VAT ceiling from 1.4% to 1.0%. 
Such a measure would reduce the annual receipts from the VAT 
resource by approximately 11bn ecus. The fall in VAT receipts 
would be compensated by higher GNP contributions. Basically, 
this would add to the financial burden of countries whose share 
of Community GNP exceeds their share in the capped VAT base. 
Thus Belgium, Denmark and Italy, would see their total own 
resource contribution grow, whereas it will decline for other 
Member States (see Chart 11). In addition, a cut in the VAT call 
rate would lead to a decline in the UK abatement. 
- 41 -
CHART 11 
VAT ceiling at 1% 
- Total resource payments 
ecu bn 
20 
15 H 
i<H 
5H 
-/ > / 
B DK D GR E F IRL I LUX NL P UK 
VAT 1.4% (PDB 92) VAT 1% 
Table 5: TOTAL RESOURCE PAYMENTS IN 1992 (ecu mn) 
Member States 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
LUX 
NL 
P 
UK VAT 1.4% 
2525 
1160 
17601 
883 
5414 
11975 
495 
9708 
116 
3636 
855 
7073 VAT 1% 
2551 
1196 
17457 
869 
5315 
11861 
488 
10052 
114 
3624 
842 
7073 Difference 
26 
36 
-144 
-14 
-99 
-114 
-7 
344 
-2 
-12 
-13 
0 
- 42 -
2.2 Capping the VAT base at a lower level 
The Commission also proposes to further correct the regressive 
distortion inherent in the VAT base by capping the VAT base at 
50% of GNP instead of the present 55%. It should be noted that 
50% is about the average share of GNP of the capped VAT bases 
for the Community (see Table 2 above). A cap at 50% would link 
the third resource to the GNP base for France, Germany and the 
Netherlands in addition to the six Member States whose base is 
already capped. 
Such a cap at 50% would reduce the VAT yield by 1.1 bn ecus, 
which would be offset by a higher GNP contribution. Again the 
impact of such a capping would be to shift the financial burden 
onto those Member States whose relative GNP share exceeds their 
share in the VAT base capped at 50 %, which are the same three 
countries that are adversely affected by a reduction in the VAT 
call rate, together with the Netherlands (see Chart 12). 
Similarly to the reduction in the VAT call rate, this measure 
will also bring down the size of the UK abatement. 
- A3 -
CHART 12 
VAT base capped at 50% of GNP 
- Total resource payments -
ecu bn 
B DK D GR E F IRL I LUX NL P UK 
VAT cap 55% (POB 92) VAT cap 50% 
Table 6: TOTAL RESOURCE PAYMENTS IN 1992 (ecu mn) 
Member States 
B 
DK 
D 
GR 
E 
F 
IRL 
I 
LUX 
NL 
P 
UK VAT cap 55% 
2525 
1160 
17601 
883 
5414 
11975 
495 
9708 
116 
3636 
855 
7073 VAT cap 50% 
2568 
1187 
17540 
858 
5239 
11919 
483 
9960 
112 
3669 
832 
7073 Difference 
43 
27 
-61 
-25 
-175 
-56 
-12 
252 
-4 
33 
-23 
0 
- 44 
3. A new fifth Community own resource? 
In the longer term it would be preferable for the Community to be 
responsible towards individual taxpayers for its resources, rather 
than to rely on national contributions as will be more and more the 
case in the future. This view is apparently supported by public 
opinion since, according to a recent survey (Eurobarometer, 22-29 May 
1991), 58 % of EC citizens support direct EC taxation (14 % did not 
give an opinion). Such a reform should be linked to an increase in 
the responsibilities of the European Parliament. 
3.1 The political perception of the own resources in the Member 
States. 
There is a clear difference between how the two categories of 
existing own resources are perceived politically in the Member 
States. The traditional own resources (customs duties, 
agricultural levies and sugar levies) do seem to be accepted as 
genuine own resources in the sense that they are not seen as a 
national contribution towards the Community budget. This is 
presumably due both to the economic reasoning behind the choice 
of these resources and to the fact that they are levied directly 
on economic agents. Budgetarily, the traditional own resources 
are often treated differently from the VAT or GNP resources at 
the national level. 
In contrast, the GNP own resource but also the VAT resource, 
though handled similarly to traditional own resources in 
Community law, are generally perceived by governments and, above 
all, by national parliaments as mere budgetary contributions 
from the Member States. 
3.2 The need for true Community own resources 
A situation in which the budget would be funded to an even 
greater extent by what are perceived as national contributions 
would be unsatisfactory from the Community's point of view. 
Politically, it would reduce the Community to being financially 
dependent on national governments, and therefore responsible 
financially towards them rather than towards individual tax­
payers. The Community budget would then tend to become 
dependent on national budgetary priorities rather than Community 
considerations. The governments of the Member States are put in 
the position of being politically responsible towards their tax­
payers for their share of Community spending which is not fully 
under their control. 
- 45 -
In the long term this is an unhealthy situation which could risk 
frustrating the development of Community policies. It introduces 
an additional rigidity into the management of the Community's 
finances. This is illustrated by the institutional difficulties 
surrounding the calls since 1988 on additional resources which 
have been well below the overall ceiling on own resources. 
It should be noted that a possible new fifth Community own 
resource is not needed primarily in order to increase the size 
of the Community budget, because the present fourth GNP resource 
provides the extra funds needed within the own resource ceiling. 
Nevertheless, as the size of the Community budget increases, the 
need for true own resources will become more pressing. 
3.3 Criteria for a possible fifth own resource 
Any new fifth own resource should be judged by its fulfilment of 
the following criteria: 
A new own resource should be fair from the point of view of 
the contributive capacity of the Member States. 
Any tax from which a new fifth Community resource is to be 
drawn should have an effectively (not just theoretically) 
harmonised base and be imposed at a uniform rate. This 
harmonization, which must be justified on economic grounds, 
will ensure that the economic effect of implementing such a 
tax would not distort competition and the functioning of the 
internal market. 
A new own resource should be linked to a common policy in an 
area in which the Community has a well-recognized and 
acknowledged role. Not only is this a requirement of Article 
2.2 of the Decision on Own Resources, but it would help the 
raising of Community funds appear justified in the eyes of 
the public and policy makers. Of course, this would not mean 
that the product of the fifth resource should be imputed to 
any particular area of Community action. 
- 46 
There is ' little point in creating a new fifth own resource 
unless there is the prospect that it would reliably and 
predictably give substantial revenue, and not be too costly 
to levy (an existing tax may be cheaper than a new one, an 
excise tax is likely to be less costly to administer than an 
indirect or direct tax). 
Clear visibility through direct links to tax payers is 
important for democratic accountability. This implies 
that : 
= coverage of the tax should be broad, so as to affect as 
many economic agents as possible; 
= individuals should also contribute rather than firms only; 
= the rate of imposition of the tax should be such that it 
is noticed by contributors. 
3.4 The conditions for a fifth own resource 
For the institutional and the financial development of the 
Community, it would be desirable to introduce a new fifth own 
resource. This would go some way to correct the present 
unsatisfactory situation in which the traditional own resources 
are diminishing in importance. Moreover, not only the GNP, but 
also the VAT resources are actually perceived by governments 
and, above all, by national parliaments as national 
contributions, rather than true Community own resources. 
It is important that a new own resource should be fair. Also it 
should be a genuine Community tax and thus come from a 
harmonized base. This harmonization must be justified on 
economic grounds. Moreover, politically, a fifth resource should 
be linked to increased budgetary responsibilities for the 
European Parliament. 
The Commission has examined various possibilities concerning 
taxes at the national level whose proceeds could be shared with 
the Community. However, it has found that, at present, no 
candidate exists in the tax system of the Member States with a 
base that is sufficiently harmonized. 
In the medium-term, the political development of the Community 
will make a new own resource necessary. The Commission will make 
every effort to promote the necessary conditions allowing the 
creation of such a resource. 
ISSN 0254-1475 
COM(92) 81 final 
DOCUMENTS 
EN 01 
Catalogue number : CB-CO-92-098-EN-C 
ISBN 92-77-41845-1 
Office for Official Publications of the European Communities 
L-2985 Luxembourg