Myths and truths about the salaries and taxes of EU officials

Wednesday, 22 June 2016 12:37
Are European officials in it for the money? We can expect to hear this charge repeated again and again in these days of continuing government austerity drives and pay cuts for national civil servants in the EU member states.

In fact, it's a question that's almost as old as the EU itself but one that was brought into sharp focus after it emerged in the beginning of this year that judges at the Court of Justice of the EU will receive a pay increase of 2.4 per cent in 2016, bringing their basic salaries to almost €256,000.

That's more than double what for example UK Premier David Cameron is paid. With an allowance for “entertainment” and a 15 per cent residence allowance, an EU judge can earn more than €300,000 a year. Each judge is also entitled to a car and chauffeur.

EU judges may be unusually well paid but such figures fuel concern about the perks enjoyed by staff working in the EU institutions, albeit further down the pecking order, including what are seen as favourable rates of taxation.

Which taxes do they pay?

EU-employees are exempted from national income tax according to an agreement, the so-called Protocol on Privileges and Immunities of the European Union, annexed to the treaties establishing the Union. It's also well known that EU staff in Brussels and Luxembourg gets a wide range of allowances.

But it's actually a myth to say, as some have, that EU officials do not pay any income tax at all. The truth is that they do. A special “Community income tax” is paid by EU staff – though, admittedly, it’s generally lower than national rates of income tax for civil servants.

EU officials pay a progressive income tax on their salaries and pensions of between 8 % up to 45%. In addition they also pay a special solidarity levy of 6 % or 7 %. Counting all taxes and social security contributions to pension and health insurance the marginal tax rate can, in some cases, rise to up above 50 %.

According to figures from the European Commission, for the majority of employees the average percentage of tax and other deductions from the basic salary lies in the range of 12 – 25 %.

The revenue from the income tax is deducted from the national contributions to the EU budget under the form of funding for projects, meaning, according to the European Commission, that this income tax benefits all EU states regardless the nationality of the official or his/her country of residence.

EU officials of course pay local taxes in Belgium such as VAT, real estate tax, and vehicle tax.

But this has done nothing to quieten the many critics of the existing tax system, including Open Europe, a UK-based non-partisan and independent policy think tank which campaigns for reform of the EU. It points to a study a few years ago by the European Parliament which, with a heavy dose of irony, Open Europe says "explains the terrible conditions that EU civil servants have to endure."

Open Europe says that the survey showed that EU civil servants work an average of 37.5 hours a week and retire at the age of 65 on a potential 70 % of their final basic salary – that is if they have been working for at least 30 years at the EU institutions.

It states, "Not all EU civil servants are overpaid, some (for instance some contractors) are not, and many work hard." But it says that an average EU yearly salary is approximately €78,503, rising to about €91,064 if an employee can claim a tax free 16% expatriate allowance. It is said that an estimated 70% of EU staff do this. The figures could not be independently verified by the European Commission.

Response to Council concerns

Basic gross monthly salaries for Commission staff currently range from €2,400 – 2,700 for a secretary or assistant, € 4,500 for an administrator, € 7,300 for a mid-level manager, to about €18,000 for a director-general and about €20,000 for a commissioner. Contract agents start with a monthly salary of € 1,700 – 2,200 depending on category.

The share of administration costs has been stable for a long time and amount to less than 6% of the EU's budget, which itself is equivalent to 1% of total EU economic output (GDP). Compared with some 55,000 EU civil servants serving some 500 million Europeans, Birmingham City Council in the UK, for example, has 60,000 employees and the Paris administration has 73 000 employees.

In the past, the Council - the grouping of EU governments - has voiced concerns about EU pay, tax, pensions and career-related issues. Partly as a response to these concerns, the European Commission plans to cut its administration costs.

Thanks to the 2014 Staff Regulation Reform, a very limited salary adjustment for the period 2010-2012 and a freeze of salaries for 2013 and 2014, the EU institutions will make administrative savings of a total of €4.3 billion in the period 2014-2020 and €1.5 billion per year in the long-term.

A press officer told us that the Commission has undertook major reforms of the Staff Regulations applicable to the staff in all EU Institutions and bodies, including  lower entry-level salaries, establishing a contract agent category with lower salaries, raising the retirement age, and reducing pension rights. 

The EU institutions are reducing their staff levels in view of achieving a 5% reduction by 2017 compared to 2013. New responsibilities and priorities are met by redeploying existing staff as well as by an increase in the number of working hours (from 37.5 to 40 per week) without financial compensation.

According to a Commission source, "The notion that EU civil servants have extraordinarily high compensation is a legend repeated for political reasons.”

"Meaningful comparison is difficult but in Luxembourg, one of the seats of the EU, the lowest EU pay grade is actually lower than the local minimal wage. In some member states like Denmark, it's also difficult to attract people with the right skills because the pay is too low for them. It's obviously higher than what people make in Romania but that's a trivial function of the type of work EU civil servants do and the location of the institutions.”

Whatever the figures and comparisons there will always be Eurosceptics who will claim that EU officials are too much paid or are not taxed enough.

What is more worrying is that in its eager to cut costs by changing the composition of its staff, the Commission reforms of human resource management might be counterproductive. The Community interest and EU citizens might be better served by having well-paid, experienced and independent officials who don’t have to fear to lose their jobs than low-paid temporary contract agents in the EU administration.

By Martin Banks
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