The EU Budget: Revenue, Expenditure, and the Multiannual Financial Framework

The EU Budget: Revenue, Expenditure, and the Multiannual Financial Framework

1. Introduction: The Financial Foundations of the European Union

The European Union is not simply a regulatory organisation. It is also a political and economic system that finances common policies, supports investment, redistributes resources between regions, responds to emergencies, and contributes to the implementation of objectives agreed by its Member States.

These activities require a common budget governed by a distinct legal and institutional framework. Unlike a national government, the European Union does not possess general taxation powers or unrestricted authority to borrow in order to finance ordinary expenditure. Its budget is subject to treaty-based principles of financial discipline, a system of own resources, annual budgetary authorisation, and long-term expenditure limits.

The EU budget finances a wide range of activities. It supports agricultural policy, regional and social development, scientific research, education, infrastructure, environmental protection, border management, external cooperation, and the administration of Union institutions. It also provides financial assistance in response to crises and supports investment programmes intended to strengthen economic and territorial cohesion.

The legal framework must distinguish between three closely connected elements:

1. The annual budget, which authorises revenue and expenditure for a particular financial year.
2. The Multiannual Financial Framework (MFF), which establishes expenditure ceilings and political priorities over a period of several years.
3. The system of own resources, which determines how the Union obtains the revenue necessary to finance its expenditure.

These elements operate together but are governed by different procedures and legal instruments.

As of November 2026, the Union is operating under the 2021–2027 Multiannual Financial Framework, while negotiations are progressing on the Commission’s proposed framework for 2028–2034. The next financial framework is particularly significant because it is intended to reorganise the budget around fewer, broader spending categories, introduce new financing mechanisms, and respond to changing priorities concerning competitiveness, security, defence, migration, agriculture, and regional development.

The EU budget is therefore not merely an accounting document. It is an instrument through which the Union’s political priorities are translated into legally authorised financial commitments.

2. Legal Foundations of the EU Budget

The principal legal foundations of the EU budget are found in Title II of Part Six of the Treaty on the Functioning of the European Union (TFEU), particularly Articles 310–325.

These provisions establish the constitutional principles governing the preparation, adoption, implementation, financing, and control of the Union’s budget.

Article 310 TFEU establishes the principle that all revenue and expenditure of the Union must be included in the budget and that the annual budget must be balanced. It also requires expenditure to be authorised for the relevant financial year and implemented in accordance with the principle of sound financial management.

Article 311 TFEU establishes the system of Union own resources. It provides that the Union must have the financial means necessary to attain its objectives and carry out its policies. The system of own resources is determined through a special legislative procedure requiring unanimity in the Council and approval by the Member States in accordance with their respective constitutional requirements.

Article 312 TFEU governs the Multiannual Financial Framework. It requires the MFF to ensure that Union expenditure develops in an orderly manner and remains within the limits of the Union’s available resources.

Article 313 establishes the financial year, which runs from 1 January to 31 December. Article 314 sets out the procedure for adopting the annual budget.

Articles 317–319 govern budget implementation, accounting, and discharge. Article 317 gives the Commission responsibility for implementing the budget, in cooperation with the Member States. Article 318 requires the Commission to submit annual accounts and financial statements. Article 319 provides for Parliament’s discharge procedure.

Article 322 provides the legal basis for adopting the financial rules governing budget establishment, implementation, accounting, and auditing.

Article 325 requires the Union and Member States to counter fraud and other illegal activities affecting the Union’s financial interests.

These provisions form a coherent constitutional framework. They establish not only who may authorise and spend Union money, but also the limits within which that authority must be exercised.

The European Commission provides an overview of the relevant treaty provisions and budget legislation in its EU Budget Law framework.

3. The Main Principles Governing the EU Budget

The EU budget operates under several principles designed to ensure financial discipline, transparency, legality, and accountability.

3.1 Unity

The principle of unity requires the Union’s revenue and expenditure to be brought together in a single budgetary framework.

This allows the institutions and the public to understand the overall financial position of the Union and to examine how available resources are allocated.

Unity does not mean that every EU financial activity is financed through the ordinary annual budget in exactly the same way. Special instruments and borrowing arrangements may operate under separate legal frameworks. Nevertheless, the principle requires financial operations to be properly recorded and governed by applicable budgetary rules.

3.2 Annuality

The annuality principle means that the EU budget is established for a financial year running from 1 January to 31 December.

Annual authorisation ensures that expenditure is subject to regular institutional scrutiny. It also allows the institutions to adjust financial priorities in response to changing circumstances.

However, many EU programmes extend beyond a single year. Infrastructure projects, research programmes, regional development initiatives, and agricultural investments often require several years to complete.

The distinction between annual budgetary authorisation and multiannual programme implementation is therefore essential.

3.3 Balance

Article 310 TFEU requires the EU annual budget to be balanced. Ordinary budgetary expenditure must be covered by available revenue and other legally recognised financing sources.

The Union does not operate a general system of deficit financing comparable to that of a national government. It cannot ordinarily authorise expenditure simply because it expects to borrow the necessary money in the future.

The principle does not mean that the Union can never borrow. The NextGenerationEU recovery instrument demonstrates that borrowing may be authorised through a specific legal framework and for defined purposes. However, such borrowing is exceptional and does not transform the ordinary EU budget into a general deficit-financed public budget.

3.4 Specification

The principle of specification requires appropriations to be allocated to defined purposes and budgetary headings.

The institutions cannot freely use funds authorised for one purpose to finance an unrelated activity. Transfers between budget lines may be possible, but they must comply with the Financial Regulation and the relevant institutional procedures.

This principle protects the authority of the budgetary institutions and helps ensure that expenditure reflects the purposes for which it was approved.

3.5 Sound Financial Management

Sound financial management requires the Union to use public resources economically, efficiently, and effectively.

Economy concerns obtaining resources at the appropriate time, quantity, quality, and price. Efficiency concerns the relationship between resources used and results achieved. Effectiveness concerns whether the intended objectives are actually attained.

The principle applies throughout the financial management cycle, from programme design and selection of beneficiaries to implementation, monitoring, and evaluation.

A project may comply formally with expenditure rules but still represent poor financial management if it produces little practical value relative to its cost.

3.6 Transparency

Budgetary transparency allows the institutions, Member States, beneficiaries, auditors, and public to examine how EU resources are raised and spent.

The publication of budgetary documents, financial reports, programme information, and audit findings enables scrutiny of financial decisions.

Transparency is particularly important because a substantial proportion of EU expenditure is implemented through national authorities, public institutions, private organisations, and other intermediaries rather than directly by the Commission.

3.7 Legality and Regularity

EU expenditure must have a valid legal basis and comply with applicable financial rules.

Article 310(3) TFEU requires expenditure to be supported by a legally binding Union act establishing the relevant policy or programme, except where the law provides otherwise.

The existence of a budget appropriation does not, by itself, create an unlimited power to spend. The expenditure must also comply with the underlying legal instrument and the applicable conditions governing the programme.

4. The Annual EU Budget: Adoption and Institutional Responsibilities

The annual budget is adopted through the special legislative procedure established by Article 314 TFEU.

Although the Commission prepares the draft, the European Parliament and the Council jointly exercise the principal budgetary authority.

The procedure follows a defined institutional sequence.

First, each EU institution prepares estimates of its expenditure for the following financial year. These estimates are submitted to the Commission, which consolidates them into a draft budget.

The Commission must normally submit the draft budget to the European Parliament and the Council by 1 September of the year preceding the financial year concerned.

The Council then adopts its position and forwards it to Parliament by 1 October. Parliament examines the Council’s position and may approve it, make amendments, or request further negotiations.

Where Parliament and the Council disagree, a Conciliation Committee is convened. It consists of representatives of both institutions and has 21 days to seek agreement on a joint text.

If agreement is reached, Parliament and the Council have a further period of 14 days to approve the joint text. The Treaty provides different consequences depending on whether the institutions approve or reject it.

If the Conciliation Committee does not agree on a joint text, the Commission must submit a new draft budget.

Once the budget has been adopted, the President of the European Parliament formally declares it definitively adopted.

The procedure gives both Parliament and Council substantial authority, but their institutional roles reflect different forms of representation.

The European Parliament represents the Union’s citizens and exercises democratic control over expenditure. The Council represents the governments of the Member States and reflects their national financial and political interests.

The Commission occupies a different position. It prepares the draft budget, manages implementation, monitors expenditure, and reports on financial performance.

The result is a system in which the budget is not controlled by a single institution. Its preparation, adoption, implementation, and oversight are distributed among several institutions to ensure institutional balance.

5. The EU’s System of Own Resources: Where the Money Comes From

Article 311 TFEU provides that the Union’s budget is financed through its own resources, without prejudice to other revenue.

The system is distinctive because the EU does not possess general authority to impose direct taxes on individuals and businesses in the same way as national governments.

Instead, it relies on categories of revenue established by the Own Resources Decision and on other sources of income.

The current framework is primarily governed by Council Decision (EU, Euratom) 2020/2053, which entered into force in June 2021 and applies retroactively from 1 January 2021.

The current system contains four principal categories of own resources.

5.1 Traditional Own Resources: Customs Duties

Traditional own resources consist mainly of customs duties collected on imports from countries outside the European Union.

The customs union means that Member States apply a common external tariff to relevant imports entering the Union’s customs territory. Customs duties collected by national authorities therefore generate revenue for the EU budget.

Member States are responsible for collecting these duties and transferring the relevant amounts to the Union, subject to the applicable collection-cost arrangements.

Under the current framework, Member States retain 25% of collected customs duties to cover collection costs.

Traditional own resources connect the EU budget directly with the operation of the customs union and the Union’s common commercial framework.

5.2 VAT-Based Own Resources

The second category consists of contributions calculated by reference to the value-added tax (VAT) base of each Member State.

The current system applies a uniform call rate of 0.3% to a harmonised VAT base, subject to a limit of 50% of each Member State’s gross national income.

This is not a direct transfer of a fixed percentage of every VAT payment collected from consumers. It is a calculated budgetary contribution based on a harmonised measure of national VAT capacity.

The system seeks to provide a relatively consistent basis for determining each Member State’s contribution.

5.3 The Plastic Packaging Waste-Based Own Resource

Since 1 January 2021, the EU budget has included a contribution based on the quantity of non-recycled plastic packaging waste generated by each Member State.

The current call rate is €0.80 per kilogram of non-recycled plastic packaging waste, subject to the applicable calculation and adjustment rules.

The resource has a dual policy dimension. It provides revenue for the Union while also creating a financial incentive for Member States to reduce non-recycled plastic packaging waste.

However, it is important to distinguish this mechanism from a direct EU tax imposed on individual consumers. The contribution is calculated at Member State level and forms part of the own resources system.

5.4 Gross National Income-Based Contributions

The GNI-based resource is the largest source of revenue for the EU budget.

Each Member State contributes according to its gross national income, using a uniform rate calculated to ensure that the Union’s revenue covers the expenditure authorised in the budget.

The rate is adjusted as necessary after taking account of the other available revenue sources and the financial requirements of the Union.

The GNI-based contribution therefore acts as the balancing element of the system.

Its importance has increased over time because customs duties, VAT-based contributions, and the plastic resource do not generate sufficient revenue to finance the full range of EU expenditure.

The mechanism also reflects the principle that Member States with greater economic capacity contribute more in absolute terms.

5.5 Other Revenue

In addition to own resources, the Union receives other forms of revenue.

These may include:

• Fines imposed on companies for breaches of EU competition law.
• Interest on late payments.
• Contributions from non-EU countries participating in certain programmes.
• Taxes deducted from the salaries of EU staff.
• Refunds and recoveries from previous expenditure.
• Surpluses carried forward from previous financial years.

These sources supplement the own resources system but do not replace it as the principal financing mechanism.

The European Commission and Council provide detailed explanations of the EU own resources system.

6. The Own Resources Decision and the Constitutional Position of Member States

The system of own resources has a distinctive constitutional status.

Under Article 311 TFEU, the Council adopts the Own Resources Decision unanimously, after consulting the European Parliament. The decision must then be approved by every Member State in accordance with its constitutional requirements before entering into force.

This means that changes to the fundamental financing structure of the Union require the agreement of all Member States and the completion of their respective national approval procedures.

The requirement reflects the importance of national financial sovereignty. Although the Union has its own budget, the Member States remain central to the decision concerning how it is financed.

The procedure also explains why proposals for new own resources can be politically and legally complex. A new revenue category may require changes to the Own Resources Decision, unanimous agreement in the Council, and national approval.

The European Parliament is consulted in the adoption of the Own Resources Decision, but it does not possess the same consent power that it exercises in relation to the MFF.

This distinction is significant. Parliament is a co-authorising budgetary authority in the annual budget procedure, but the constitutional arrangements for establishing the Union’s revenue system give Member States a particularly strong position.

7. Expenditure: What Does the EU Budget Finance?

EU expenditure is distributed among policy areas that reflect the Union’s treaty objectives and political priorities.

The precise structure varies between multiannual financial frameworks, but several major fields of expenditure have remained central.

7.1 Agriculture and Rural Development

The Common Agricultural Policy (CAP) is one of the oldest and most substantial areas of EU expenditure.

It supports agricultural income, contributes to food security, promotes rural development, and seeks to improve the environmental sustainability of agricultural activity.

The CAP is financed primarily through the European Agricultural Guarantee Fund and the European Agricultural Fund for Rural Development.

Direct payments to farmers form a major part of agricultural expenditure, while rural development measures support investment, environmental schemes, modernisation, and the economic sustainability of rural areas.

The legal framework must balance several objectives that may sometimes compete. Agricultural productivity, environmental protection, fair income for farmers, consumer interests, and rural economic development must all be considered.

7.2 Economic, Social, and Territorial Cohesion

Cohesion policy seeks to reduce economic and social disparities between European regions.

Its legal and financial instruments support employment, infrastructure, education, innovation, regional development, and social inclusion.

The European Regional Development Fund (ERDF) finances projects intended to strengthen regional economies and improve infrastructure. The European Social Fund Plus (ESF+) supports employment, skills, education, social inclusion, and measures addressing poverty.

The Cohesion Fund supports eligible Member States in areas including environmental protection and trans-European transport infrastructure.

The policy is based on the understanding that the internal market and economic integration may produce uneven effects across regions. Financial transfers and targeted investment are intended to support convergence and improve the ability of less developed regions to participate in the European economy.

7.3 Research, Innovation, and Competitiveness

The EU budget supports scientific research, technological development, and innovation through programmes such as Horizon Europe.

Research funding can support universities, public research institutions, businesses, and international partnerships.

The objective is to strengthen Europe’s scientific capacity, encourage technological innovation, and improve the Union’s competitiveness in strategic industries.

Other instruments support digital transformation, infrastructure, small and medium-sized enterprises, and the development of emerging technologies.

7.4 Education, Culture, and Youth

Programmes such as Erasmus+ support education, training, youth participation, and sport.

They promote mobility between Member States and cooperation between educational institutions.

The programme has both an educational and a wider integration dimension. Students, teachers, and young people can gain experience in other Member States, contributing to professional development and a stronger sense of European cooperation.

7.5 Environment, Climate, and Energy

EU expenditure supports environmental protection, climate action, biodiversity, renewable energy, energy efficiency, and the modernisation of energy infrastructure.

The LIFE programme supports environmental and climate-related projects, while other financial instruments contribute to energy networks, sustainable transport, and the green transition.

Climate-related expenditure is increasingly integrated into several policy areas rather than being confined to a single programme.

7.6 Migration, Border Management, and Internal Security

The EU budget also finances cooperation in migration management, asylum systems, border control, visa policy, and internal security.

Relevant instruments include the Asylum, Migration and Integration Fund and the Border Management and Visa Instrument.

Funding supports Member States in implementing common EU policies, strengthening administrative capacity, and managing cross-border challenges.

7.7 External Action and International Cooperation

The Union finances development cooperation, humanitarian assistance, neighbourhood policy, and international partnerships.

These instruments support the Union’s external objectives and contribute to its role as an international actor.

Funding may support infrastructure, education, health, governance, humanitarian relief, and economic development in partner countries.

7.8 European Public Administration

A portion of the EU budget finances the operation of the institutions and bodies of the Union.

This includes staff salaries, buildings, translation and interpretation services, information technology, administrative systems, and other operational expenditure.

Administrative expenditure is necessary for the functioning of the institutions, although it is subject to the same principles of budgetary discipline and sound financial management.

8. The Multiannual Financial Framework: Purpose and Legal Nature

The Multiannual Financial Framework is the central instrument of long-term EU budgetary planning.

Article 312 TFEU requires the MFF to cover a period of at least five years. It establishes annual expenditure ceilings for the Union as a whole and for major categories of expenditure.

The current framework covers seven years, from 2021 to 2027.

The MFF does not itself authorise every individual payment or establish every programme. Rather, it determines the maximum financial limits within which annual budgets and sectoral spending programmes must operate.

It therefore performs three principal functions.

First, it provides financial predictability. Member States, institutions, businesses, universities, farmers, and regional authorities can plan activities on the basis of an agreed long-term funding structure.

Second, it imposes budgetary discipline. The annual budget cannot ordinarily exceed the ceilings established by the MFF.

Third, it translates political priorities into financial allocations. Decisions concerning agriculture, research, cohesion, security, climate, and external action are reflected in the distribution of long-term spending limits.

The MFF is adopted through a special legislative procedure. The Council must act unanimously after obtaining the consent of the European Parliament.

Parliament therefore has a consent power rather than the ordinary ability to amend the MFF regulation through the standard legislative procedure. If Parliament withholds consent, the framework cannot be adopted in the proposed form.

The unanimity requirement gives every Member State significant influence over the long-term budget, reflecting the political sensitivity of financial commitments extending over several years.

The MFF is supported by an interinstitutional agreement on budgetary discipline, cooperation in budgetary matters, and sound financial management.

This agreement helps coordinate the work of Parliament, Council, and Commission and establishes practical arrangements for budgetary cooperation.

9. The 2021–2027 Multiannual Financial Framework

The current MFF was adopted in December 2020 and subsequently adjusted through amendments and revisions.

It originally established a maximum spending framework of approximately €1.074 trillion in 2018 prices, equivalent to approximately €1.211 trillion in current prices over seven years.

The framework is divided into seven principal headings:

1. Single Market, Innovation and Digital.
2. Cohesion, Resilience and Values.
3. Natural Resources and Environment.
4. Migration and Border Management.
5. Security and Defence.
6. Neighbourhood and the World.
7. European Public Administration.

Special instruments provide additional flexibility for responding to emergencies and unforeseen circumstances.

The framework was designed before several major developments reshaped the Union’s financial priorities. The COVID-19 pandemic, Russia’s full-scale invasion of Ukraine, energy security concerns, inflation, and changing geopolitical conditions all affected the implementation of the budget.

The MFF was therefore revised to accommodate new needs and adjust the allocation of resources.

9.1 The 2021–2027 Framework and NextGenerationEU

The ordinary MFF must be distinguished from NextGenerationEU (NGEU), the temporary recovery instrument established in response to the economic consequences of the COVID-19 pandemic.

NextGenerationEU authorised the Commission to borrow on capital markets on behalf of the Union and use the proceeds to finance recovery-related expenditure and investment.

Its central component is the Recovery and Resilience Facility (RRF), which provides financial support to Member States for reforms and investments linked to agreed national recovery and resilience plans.

The facility combines grants and loans, subject to the applicable legal conditions and performance requirements.

NextGenerationEU is not simply another ordinary spending heading within the 2021–2027 MFF. It is a separate temporary instrument connected to the Union’s budgetary framework and borrowing arrangements.

The borrowing also creates repayment obligations extending beyond the current MFF period. Under the existing framework, the repayment of the principal associated with the recovery instrument must be completed by the end of 2058.

This introduces a significant long-term consideration into negotiations over the next financial framework: future budgets must accommodate the repayment obligations arising from the Union’s borrowing.

10. The Annual Budget for 2026

The 2026 EU budget is the sixth annual budget under the 2021–2027 MFF.

It was adopted as Definitive Adoption (EU, Euratom) 2026/72 and entered into application on 1 January 2026.

The budget amounts to approximately:

• €192.8 billion in commitment appropriations.
• €190.1 billion in payment appropriations.

These figures represent two different forms of budgetary authority.

Commitment appropriations authorise the Union to enter into legal obligations for expenditure. A commitment may relate to a project or programme that will require payments over several years.

Payment appropriations authorise the actual payments made during the financial year to meet obligations arising from current and previous commitments.

The distinction is essential when evaluating EU expenditure. A project may be legally committed in one year but generate payments over several subsequent years.

The 2026 budget allocates substantial resources to cohesion, resilience, and values, as well as natural resources and environmental policies. It also finances research, innovation, security, migration management, external action, and administrative expenditure.

The budget includes funding for Ukraine-related support, the European Defence Industry Programme, the Reform and Growth Facility for the Western Balkans, and other priorities.

It also retains resources under special instruments to address emergencies and unforeseen needs.

The 2026 budget illustrates the relationship between the annual budget and the MFF. The annual budget establishes the precise appropriations for that year, but it must remain within the long-term ceilings established by the 2021–2027 framework.

The official figures and legal adoption details are available in the 2026 EU Budget summary on EUR-Lex.

11. The 2028–2034 Multiannual Financial Framework: A New Financial Architecture

The next Multiannual Financial Framework is being negotiated as the Union prepares for the period beginning on 1 January 2028.

On 16 July 2025, the European Commission presented its proposal for the 2028–2034 MFF. It proposed a framework of approximately €1.763 trillion in 2025 prices, equivalent to around 1.26% of the EU’s gross national income over the period.

Expressed in current prices, the proposed framework is close to €2 trillion.

The proposal reflects a substantial redesign of the budget. It seeks to simplify the spending architecture, increase flexibility, and direct resources towards a combination of established and emerging European priorities.

The principal policy areas include:

• Economic competitiveness and innovation.
• Security and defence.
• Agricultural and rural development.
• Economic, social, and territorial cohesion.
• Migration and border management.
• Climate and energy transition.
• Research and technological development.
• External action and international partnerships.

The proposal also addresses the financial implications of NextGenerationEU repayment obligations.

The Commission’s initial proposal and explanatory memorandum are available through EUR-Lex, COM(2025) 571.

11.1 A Simplified Budget Structure

One of the central features of the proposed framework is the consolidation of spending programmes into fewer, broader categories.

The Commission’s original proposal organised the MFF around three main policy headings and a separate heading for European public administration.

The subsequent negotiations have developed a structure organised around four broad headings:

1. Supporting people, regions, and communities.
2. Boosting competitiveness, prosperity, and security.
3. Global Europe.
4. European public administration.

The purpose of consolidation is to reduce fragmentation, simplify access to funding, and allow greater flexibility in responding to changing priorities.

However, the reduction in the number of headings does not automatically mean that every programme will become simpler or that national and regional authorities will face fewer administrative requirements. The practical effects depend on the detailed sectoral regulations and implementation arrangements.

11.2 National and Regional Partnership Plans

One of the most significant innovations in the proposed 2028–2034 framework is the introduction of National and Regional Partnership Plans (NRPPs).

Under the proposal, each Member State would prepare a comprehensive plan bringing together several areas of EU-funded activity.

These plans are intended to integrate funding that is currently distributed through separate programmes, particularly in cohesion policy, agriculture, fisheries, migration, and internal security.

The approach would replace aspects of the existing fragmented programme structure with a more coordinated national planning system.

The plans are intended to connect investments and reforms with measurable milestones and targets. Funding would be released in accordance with the relevant legal and financial conditions, including the fulfilment of agreed requirements.

The Council agreed a partial negotiating position on the NRPP framework in June 2026. Its position supports a consolidated national planning structure while seeking to preserve the involvement of regional and local authorities and maintain appropriate flexibility for Member States.

This proposed architecture raises important questions about the balance between national coordination and regional autonomy. A single national plan may improve consistency, but regional authorities must still be able to participate meaningfully in the design and implementation of projects that directly affect their territories.

The negotiations therefore concern not only the allocation of money but also the distribution of administrative responsibility.

11.3 Competitiveness, Research, and Security

The proposed MFF places considerable emphasis on European competitiveness.

The Union faces significant investment requirements in research, industrial development, digital infrastructure, energy systems, and strategic technologies.

The proposed framework seeks to provide more coordinated support for these areas, while addressing the need to strengthen European security and defence capabilities.

The Connecting Europe Facility is also expected to remain important for cross-border transport and energy infrastructure, including projects that contribute to military mobility and energy security.

The precise programme allocations and implementation conditions remain subject to the legislative process.

11.4 Agriculture and Cohesion Policy

Agriculture and cohesion remain major areas of expenditure, but the proposed restructuring changes the way funding is organised.

The Council’s negotiating positions during 2026 have addressed the future of the Common Agricultural Policy, fisheries support, and regional development.

The central issue is how to combine greater flexibility for Member States with the maintenance of common European objectives and sufficiently predictable funding.

For agriculture, the discussions concern income support, the position of active farmers, rural development, environmental requirements, and the resilience of food production.

For cohesion policy, the challenge is to preserve the objective of reducing regional disparities while ensuring that investments contribute to measurable economic and social development.

11.5 Flexibility and Crisis Response

The proposed MFF seeks to increase the Union’s ability to respond to unexpected developments.

The experience of the previous framework demonstrated that a rigid budget can be difficult to adapt when the Union faces emergencies that were not fully anticipated at the time of adoption.

Greater flexibility may involve reserves, special instruments, and broader possibilities for reallocating funds within defined legal limits.

However, flexibility must be balanced against predictability. Member States and beneficiaries require sufficient certainty to plan long-term investments and fulfil contractual commitments.

The challenge is to create a financial framework that can respond to emergencies without undermining the stability of established programmes.

12. Reform of the EU’s Revenue System: Proposed New Own Resources

The financing of the 2028–2034 MFF is closely connected to the debate about new own resources.

The Commission has proposed five new categories of revenue to supplement the existing system.

The proposals seek to reduce the pressure on national contributions and provide additional resources for the Union’s common priorities and financial obligations.

The proposed categories include:

1. Emissions trading system revenues. A share of revenues generated through the auctioning of emissions allowances would be allocated to the EU budget.

2. Carbon border adjustment mechanism revenues. A share of revenue arising from the carbon price applied to certain imported goods would contribute to the Union’s budget.

3. Tobacco excise duty. The proposal would establish a contribution linked to the minimum excise duty applied to tobacco products in Member States.

4. Electronic waste levy. The proposal would introduce a contribution based on the quantity of uncollected electronic waste reported by Member States.

5. Corporate Resource for Europe (CORE). The proposed mechanism would establish an annual lump-sum contribution for large companies operating in the Union with net annual turnover of at least €100 million, subject to the detailed legal design.

The Commission estimates that the proposed new resources and adjustments to the existing system could generate approximately €58.2 billion annually in 2025 prices.

These proposals are not all established sources of EU revenue. They form part of the negotiations on the next Own Resources Decision and remain subject to agreement.

The distinction is constitutionally important. Under Article 311 TFEU, the Council must adopt the new Own Resources Decision unanimously after consulting Parliament, and the decision must be approved by all Member States in accordance with their constitutional requirements.

Consequently, the proposed revenue structure cannot be treated as final merely because the Commission has presented it.

The debate also raises a wider institutional question: whether the Union should rely increasingly on revenue streams linked to common European policies or continue to depend primarily on contributions calculated by reference to national economic capacity.

13. Budget Implementation: Direct, Shared, and Indirect Management

The adoption of the budget is only the beginning of the financial process. The Union must also ensure that authorised expenditure reaches the intended beneficiaries and produces the results for which it was approved.

The Commission is responsible for implementing the budget under Article 317 TFEU. However, implementation does not mean that the Commission personally administers every project or makes every payment.

The Financial Regulation recognises three principal management methods.

13.1 Direct Management

Under direct management, the Commission or an authorised EU body is responsible for implementing the relevant programme.

This may involve publishing calls for proposals, evaluating applications, selecting beneficiaries, signing grant agreements, making payments, and monitoring performance.

Direct management is used in programmes where EU institutions or agencies administer funding themselves.

13.2 Shared Management

Shared management is particularly important in agricultural and cohesion policy.

Under this method, the Commission and Member States share responsibility for implementing the budget.

National or regional authorities select projects, manage programmes, verify expenditure, and carry out administrative checks. The Commission supervises the overall system and remains responsible for protecting the Union’s financial interests.

This arrangement reflects the fact that Member States possess the administrative structures and local knowledge required to implement many EU-funded programmes.

However, shared management also creates risks. Weak national controls, conflicts of interest, inadequate procurement procedures, or inaccurate reporting may lead to irregular expenditure.

The Commission may therefore interrupt or suspend payments, impose financial corrections, or require the recovery of funds where the applicable legal conditions are met.

13.3 Indirect Management

Under indirect management, budget implementation is entrusted to entities other than the Commission or Member State authorities.

These may include international organisations, partner countries, development institutions, or other bodies that satisfy the relevant eligibility and control requirements.

The arrangement is particularly relevant to external action and international cooperation.

Although implementation may be delegated, the Union must retain adequate safeguards to ensure that funds are used lawfully and in accordance with the applicable agreements.

14. Control, Audit, and Protection of the EU’s Financial Interests

The integrity of the EU budget depends on effective financial control.

Several institutions and bodies participate in monitoring expenditure, detecting irregularities, investigating fraud, and ensuring accountability.

14.1 The European Court of Auditors

The European Court of Auditors (ECA) is the Union’s independent external auditor.

Under Article 287 TFEU, it examines the accounts of all revenue and expenditure of the Union and assesses whether financial operations have been carried out legally and regularly.

It also evaluates whether financial management has been sound.

The Court publishes an annual report containing its findings and observations concerning the implementation of the budget.

Its work is important for the annual discharge procedure because Parliament relies heavily on audit findings when deciding whether to approve the Commission’s management of the budget.

The ECA does not ordinarily administer programmes or impose criminal penalties. Its principal function is independent audit and reporting.

14.2 The European Parliament and Budgetary Discharge

Article 319 TFEU provides for the discharge procedure.

The Commission submits the accounts and financial information required for the previous financial year. Parliament examines the implementation of the budget, taking into account the Council’s recommendation and the observations of the European Court of Auditors.

Parliament may grant, postpone, or refuse discharge.

Discharge is a central mechanism of democratic accountability. It allows elected representatives to assess whether the Commission has managed the Union’s financial resources in accordance with the legal and budgetary requirements.

It is important to understand that discharge does not automatically legalise every transaction or eliminate the possibility of later recovery proceedings, investigations, or judicial action.

It is an institutional assessment of financial management rather than a blanket immunity for individual expenditure decisions.

14.3 The European Anti-Fraud Office (OLAF)

OLAF investigates fraud, corruption, and serious misconduct affecting the EU’s financial interests.

It may conduct administrative investigations within EU institutions and bodies and, under the applicable arrangements, investigate economic operators and other persons where Union funds are involved.

OLAF can recommend financial, administrative, or judicial follow-up measures. However, it does not itself exercise general criminal prosecutorial powers.

Its investigations may lead to the recovery of improperly used funds, disciplinary action, or referrals to competent national authorities.

14.4 The European Public Prosecutor’s Office (EPPO)

The European Public Prosecutor’s Office investigates and prosecutes criminal offences affecting the Union’s financial interests within the scope of its competence.

It operates under Council Regulation (EU) 2017/1939 and is responsible for investigating and prosecuting offences such as serious cross-border VAT fraud and certain forms of fraud involving EU funds.

Unlike OLAF, EPPO is a criminal prosecutorial body. It can bring cases before national courts through its European Delegated Prosecutors.

Its territorial competence applies in participating Member States. Denmark, Ireland, and Hungary do not participate in EPPO, although cooperation arrangements may exist.

The distinction between OLAF and EPPO is therefore essential: OLAF conducts administrative investigations, while EPPO exercises criminal investigative and prosecutorial functions within its legal mandate.

14.5 National Authorities

National authorities play a central role in protecting EU funds, particularly under shared management.

They are responsible for verifying expenditure, carrying out checks, identifying irregularities, and recovering funds where necessary.

They must cooperate with the Commission, the European Court of Auditors, OLAF, and EPPO in accordance with the relevant legal framework.

The protection of the EU budget is therefore a shared responsibility rather than an exclusive task of European institutions.

15. The Conditionality of EU Funding and the Rule of Law

A significant development in EU budgetary law is the introduction of a mechanism linking the protection of the Union’s financial interests to respect for the rule of law.

Regulation (EU, Euratom) 2020/2092 establishes a general regime of conditionality for the protection of the Union budget.

It allows the Union to adopt appropriate measures where breaches of the principles of the rule of law in a Member State affect or seriously risk affecting the sound financial management of the EU budget or the protection of its financial interests in a sufficiently direct way.

The mechanism is not intended to impose general political sanctions for every disagreement concerning national constitutional arrangements. Its legal purpose is narrower: protecting the budget against risks arising from rule-of-law deficiencies.

Measures may include the suspension of payments, suspension of commitments, or restrictions concerning the implementation of EU-funded programmes, subject to the conditions established by the regulation.

The mechanism must be distinguished from Article 7 TEU, which addresses serious breaches of the Union’s fundamental values through a separate political procedure.

In February 2022, the Court of Justice rejected challenges brought by Hungary and Poland against the Conditionality Regulation in Joined Cases C-156/21 and C-157/21.

The Court confirmed that the mechanism could be adopted under the relevant legal basis and that its operation was compatible with the Treaty framework, provided that the required connection with the protection of the Union budget was established.

The conditionality regime demonstrates that the EU budget is not merely an economic instrument. Its implementation is also connected with the legal principles governing the Union and the obligations of Member States.

16. Borrowing, Lending, and the Limits of EU Financial Capacity

The Union’s borrowing capacity has developed significantly in recent years.

Traditionally, the EU budget was not designed to operate through general borrowing to finance ordinary annual expenditure. Its balanced-budget principle and own resources system were intended to ensure that expenditure was covered by available revenue.

NextGenerationEU introduced an exceptional borrowing mechanism to finance recovery-related measures.

The Commission was authorised to raise funds on capital markets on behalf of the Union, with the proceeds allocated under the relevant legal instruments.

This arrangement demonstrated that the Union could mobilise substantial financial resources through common borrowing, but it also created long-term repayment obligations.

The legal basis and conditions for borrowing must be examined carefully. The existence of NextGenerationEU does not mean that the Union has acquired an unrestricted power to issue debt for any policy purpose.

Borrowing must remain within the limits and conditions established by the relevant Treaty provisions and secondary legislation.

The 2028–2034 MFF negotiations are therefore particularly important because they must address the relationship between future expenditure, new own resources, and the repayment of existing borrowing.

17. Judicial Review and Legal Remedies in EU Budgetary Matters

Budgetary decisions are subject to the general principles of EU law and the jurisdiction of the Court of Justice of the European Union.

The availability of judicial review depends on the nature of the act, the institution responsible, and the legal position of the applicant.

Article 263 TFEU allows eligible applicants to challenge acts of EU institutions, bodies, offices, and agencies intended to produce legal effects.

For example, a financial decision affecting a beneficiary may be subject to judicial review where the relevant legal conditions are met.

National courts may also become involved in disputes concerning the implementation of EU-funded programmes, public procurement, recovery decisions, and administrative procedures.

Under Article 267 TFEU, national courts may refer questions concerning the interpretation or validity of EU law to the Court of Justice.

The EU budgetary framework also contains procedures for the recovery of improperly paid funds and the correction of financial irregularities.

Beneficiaries may challenge certain recovery decisions or contractual claims through the appropriate administrative or judicial procedures.

The legal framework must balance two objectives: protecting the Union’s financial interests and ensuring that individuals, businesses, and public authorities are treated lawfully and fairly.

18. Practical Examples

Example 1: A regional infrastructure project

A regional authority receives EU funding to modernise a transport network.

The project is financed through a programme operating under shared management. National authorities select the project, verify expenditure, and monitor implementation, while the Commission supervises the overall system.

The project must comply with the applicable programme regulation, public procurement requirements, environmental rules, and financial management standards.

If the national audit authority identifies irregular expenditure, it may require corrections or recovery. The Commission may also intervene where the relevant legal conditions are satisfied.

Example 2: A research institution receiving EU funding

A university receives a grant under Horizon Europe to conduct scientific research.

The grant is awarded under direct management through the relevant EU funding procedures. The institution must comply with the grant agreement, eligible-cost requirements, reporting obligations, and applicable procurement and conflict-of-interest rules.

If the institution declares expenditure that was not incurred or cannot be justified, the Commission may reduce payments or recover the funds.

Example 3: An irregular agricultural payment

A farmer receives agricultural support under a national programme financed by the EU budget.

If the farmer provides inaccurate information concerning the eligible land or fails to satisfy the applicable conditions, national authorities may impose corrections or require repayment.

The Member State must also ensure that its control systems adequately protect the Union’s financial interests.

Example 4: A suspected fraud involving EU funds

A company is suspected of participating in a scheme involving fraudulent invoices and the misuse of EU-funded grants.

OLAF may investigate the administrative aspects of the suspected irregularity. If the evidence indicates criminal conduct within EPPO’s competence, the matter may be referred to the European Public Prosecutor’s Office.

EPPO may investigate and prosecute the relevant offences before national courts in participating Member States.

The example illustrates the different but complementary responsibilities of administrative investigators and criminal prosecutors.

19. Key Takeaways

1. The EU budget is governed principally by Articles 310–325 TFEU, which establish the rules on financial discipline, revenue, expenditure, implementation, and control.
2. The annual budget authorises expenditure for a particular financial year, while the Multiannual Financial Framework establishes long-term expenditure ceilings and priorities.
3. The EU budget must be balanced under Article 310 TFEU and must be implemented in accordance with sound financial management.
4. The Union’s principal sources of revenue are customs duties, VAT-based contributions, GNI-based contributions, and the contribution based on non-recycled plastic packaging waste.
5. The GNI-based own resource is the largest component of the current financing system and acts as the balancing element of the budget.
6. Changes to the system of own resources require unanimity in the Council and approval by all Member States in accordance with their constitutional requirements.
7. The European Commission prepares the draft annual budget and implements the adopted budget, while the European Parliament and Council jointly exercise budgetary authority.
8. The current 2021–2027 MFF is supplemented by NextGenerationEU, a temporary recovery instrument financed through authorised borrowing.
9. The 2026 EU budget provides approximately €192.8 billion in commitment appropriations and €190.1 billion in payment appropriations.
10. The proposed 2028–2034 MFF seeks to simplify the budget structure, introduce National and Regional Partnership Plans, increase flexibility, and support new strategic priorities.
11. The Commission has proposed new own resources, including revenues linked to emissions trading, the carbon border adjustment mechanism, tobacco excise duty, electronic waste, and large companies. These proposals remain subject to agreement.
12. The European Court of Auditors, OLAF, EPPO, national authorities, and the European Parliament all contribute to the protection and oversight of the Union’s financial interests.
13. Regulation (EU, Euratom) 2020/2092 establishes a conditionality mechanism linking the protection of the EU budget to compliance with rule-of-law principles where the required budgetary connection exists.
14. EU budgetary decisions and implementation measures remain subject to the principles of legality, proportionality, transparency, accountability, and effective judicial protection.

20. Frequently Asked Questions

1. What is the EU budget?

The EU budget is the financial framework through which the Union finances common policies, programmes, institutions, and investment activities. It is established annually by the European Parliament and the Council within the limits of the applicable Multiannual Financial Framework.

2. What is the Multiannual Financial Framework?

The MFF is the Union’s long-term financial plan. It establishes expenditure ceilings for a period of at least five years and provides the framework within which annual budgets must operate. The current MFF covers 2021–2027.

3. How is the EU budget financed?

The budget is financed mainly through four categories of own resources: customs duties, VAT-based contributions, GNI-based contributions, and contributions based on non-recycled plastic packaging waste. Other revenue includes fines, interest, refunds, and certain programme contributions.

4. Does the EU have the power to impose taxes directly on citizens?

The Union does not possess general direct taxation powers comparable to those of national governments. Its budget is financed through the own resources system established under Article 311 TFEU and through other legally recognised revenue.

5. Who adopts the EU annual budget?

The European Parliament and the Council jointly adopt the annual budget under Article 314 TFEU. The Commission prepares the draft and is responsible for implementing the adopted budget.

6. What is the difference between commitment and payment appropriations?

Commitment appropriations authorise the Union to enter into legal obligations for expenditure. Payment appropriations authorise the actual payments made during a financial year to fulfil those obligations.

7. What is NextGenerationEU?

NextGenerationEU is a temporary recovery instrument established in response to the economic consequences of the COVID-19 pandemic. It is financed through borrowing authorised under a specific legal framework and includes the Recovery and Resilience Facility.

8. What is the European Court of Auditors’ role?

The European Court of Auditors independently examines the Union’s revenue and expenditure, assesses whether transactions are legal and regular, and evaluates the soundness of financial management. Its findings contribute to the annual discharge procedure.

9. What is the difference between OLAF and EPPO?

OLAF conducts administrative investigations into fraud and irregularities affecting the Union’s financial interests. EPPO investigates and prosecutes criminal offences within its competence in participating Member States.

10. What is the EU budget conditionality mechanism?

Regulation (EU, Euratom) 2020/2092 allows the Union to adopt measures protecting the budget where breaches of the rule-of-law principles in a Member State affect or seriously risk affecting the Union’s financial interests in the manner required by the regulation.

11. What is the proposed 2028–2034 EU budget?

The Commission proposed a long-term financial framework of approximately €1.763 trillion in 2025 prices, equivalent to close to €2 trillion in current prices. It proposes a redesigned budget structure, greater flexibility, National and Regional Partnership Plans, and new sources of revenue.

12. Have the proposed new EU own resources already been adopted?

No. The proposed new categories of own resources remain subject to negotiations and the special procedure under Article 311 TFEU, including unanimity in the Council and approval by all Member States under their constitutional requirements.

21. Conclusion

The EU budget is one of the principal instruments through which the Union transforms common political objectives into practical action. It finances policies that would be difficult to implement effectively through national expenditure alone, particularly where the benefits and challenges extend across borders.

Its legal structure reflects the distinctive constitutional character of the European Union. The Union has its own financial resources and budgetary institutions, but the Member States retain a central role in determining the system of revenue. Parliament and Council jointly authorise annual expenditure, while the Commission implements the budget under a framework of financial rules, institutional supervision, and external audit.

The Multiannual Financial Framework adds a longer-term dimension to this system. It provides financial predictability, constrains expenditure, and establishes the broad priorities within which annual budgets are adopted. The current 2021–2027 framework has also demonstrated the need for flexibility, particularly when extraordinary events require substantial financial intervention.

The proposed 2028–2034 framework raises questions that extend beyond the size of the budget. Its proposed restructuring of programmes, National and Regional Partnership Plans, new own resources, and greater emphasis on competitiveness and security may change the relationship between European institutions, national governments, and regional authorities.

The challenge is to combine financial capacity with institutional accountability. A larger or more flexible budget is not necessarily a more effective one. Its value depends on whether resources are allocated lawfully, managed efficiently, distributed transparently, and used to achieve measurable public objectives.

Ultimately, the EU budget is both a financial instrument and an expression of European integration. It reveals what the Union is prepared to finance collectively, how its Member States share financial responsibilities, and how common political commitments are translated into legally controlled expenditure.

22. Primary Legal Sources and Further Reading

Treaty provisions

• TFEU, Article 310 – General Principles of the Union Budget
• TFEU, Article 311 – Own Resources
• TFEU, Article 312 – Multiannual Financial Framework
• TFEU, Article 314 – Annual Budgetary Procedure
• TFEU, Article 317 – Implementation of the Budget
• TFEU, Article 318 – Accounts and Financial Statements
• TFEU, Article 319 – Budgetary Discharge
• TFEU, Article 322 – Financial Rules
• TFEU, Article 325 – Protection of the Union’s Financial Interests

Principal EU legislation

• Council Decision (EU, Euratom) 2020/2053 – System of Own Resources
• Regulation (EU, Euratom) 2020/2093 – Multiannual Financial Framework 2021–2027
• Regulation (EU, Euratom) 2024/2509 – Financial Regulation
• Regulation (EU) 2020/2092 – General Regime of Conditionality for the Protection of the Union Budget
• Regulation (EU) 2021/241 – Recovery and Resilience Facility
• Regulation (EU) 2017/1939 – European Public Prosecutor’s Office
• Regulation (EU, Euratom) No 883/2013 – Investigations Conducted by OLAF

Current and proposed budgetary framework

• European Commission – EU Budget Law
• European Commission – The EU Budget and Its Implementation
• Council of the EU – Financing the EU Budget
• Council of the EU – The Long-Term EU Budget 2028–2034
• European Commission – Proposal for the 2028–2034 MFF, COM(2025) 571
• EUR-Lex – 2026 European Union Budget

Institutional oversight

• European Court of Auditors
• European Anti-Fraud Office (OLAF)
• European Public Prosecutor’s Office (EPPO)
• European Parliament – The EU Budget Explained