One may ask, where does all the money for funding come from? Many projects and programmes that are being funded by the EU are no small matter, and we’re often talking about millions (sometimes billions) of Euro’s.

Luckily the EU has her own explanations of the money flows which we can look at on their website. According to ec.europa.eu, almost 99% of the EU budget comes from the EU’s own resources. The other 1% comes from other sources.

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The own resources can be divided into three segments: traditional, revenue from value added tax, and revenue income based on GNI (gross national income). The first one mainly consist of custom import prices and taxes for imported products outside of the European Union.

Basically, every product that is being imported in Europe has to pay a certain amount of money (based on its value) in order to be sold here legally. The revenue from value added tax (VAT) is a static percentage – capped at 50% of the GNI – of levied income from every EU country.

The 50% cap is set so that less prosperous countries don’t have to pay unreasonable amounts of money to the EU.

The third source of income for the EU is a percentage levied from on the Gross National Income from each EU country. This part is mainly used to cover the parts incomes that were not met with the former two revenues. The VAT and GNI revenues are approximately good for €92 bn. and €14 bn. respectively in 2010.

The other 1% of income which does not come from EU resources include taxes on EU staff salaries, funding from countries outside the EU to certain projects within the EU and huge fines on multinationals who for defying the law.

A balance

Naturally, by the end of each year or couple of years, the budget must find a balance between income and expenses. The EU council and European Parliament have to approve the annual EU budget in order to start with projects and funding matters.

Theoretically the balance should be 0. But in practice however we often find there to be a positive difference between income and expenses. In this case the difference is always returned to the member states of the EU. Another option is the keep the money and reduce the contribution from countries for the following year. This depends on what each country think is best for their financial state at that moment in time.

Below you can see a visualization of last year’s budget and where all the money was spent:
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