The European Union needs to expand its revenue sources to fund growing costs for defense, economic competitiveness, and climate goals, according to a report from the Vienna Institute for International Economic Studies (wiiw). The bloc faces a funding gap as it prepares to spend nearly €2 trillion over 2028–2034, with current proposals relying on member state contributions and limited new revenue streams.
The wiiw study argues that the EU’s current budget system, heavily dependent on national contributions tied to gross national income and VAT, shifts the financial burden onto labor and consumption. In 2024, labor accounted for 52% of total EU tax revenue, while consumption made up 27%. Capital and wealth taxes contributed just 5% and 2%, respectively, leaving significant untapped potential.
A financial transaction tax could generate tens of billions annually, depending on its design, while also reducing speculative trading. The report estimates a common EU digital tax could raise up to €26 billion yearly, addressing gaps in taxing large foreign tech firms that profit from EU users without physical operations. A minimum tax on individuals with net wealth over €100 million could add another €40 billion annually.
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Other proposals include taxes on crypto-assets, online gambling, and a bank levy, alongside alternative corporate tax models. The study warns that over-reliance on member state contributions narrows budget debates to payment disputes rather than addressing long-term challenges.
While the European Commission has already proposed new revenue sources, such as emissions trading and a carbon border tax, the wiiw researchers emphasize that revenue decisions shape how costs are distributed across member states. A more diverse funding base, combined with common borrowing for strategic investments, could strengthen the EU’s ability to compete globally, particularly with China and the United States.
The study highlights that the EU’s €800 billion NextGenerationEU recovery fund, launched after the COVID-19 pandemic, demonstrated the benefits of shared borrowing for large-scale investments. Expanding this approach could help the bloc address defense modernization, industrial competitiveness, and the green transition without overburdening individual nations.
