As the EU prepares its next long-term budget after 2028, the European Commission has proposed several new “own resources” to strengthen EU-level financing. One of the most debated ideas is the Tobacco Excise Duty Own Resource (TEDOR) – a mechanism under which 15% of national tobacco excise revenues would be transferred directly into the EU budget.
At first glance, this may look like a technical adjustment. In reality, it raises a fundamental question: How far should the EU go in drawing on national tax revenues to fund shared priorities?
What the EU hopes to achieve
The European Commission estimates that TEDOR could generate roughly €11.2 billion annually for the EU budget. But this figure depends on two major uncertainties: (i) the successful negotiation of a comprehensive reform of the Tobacco Excise Directive (TED), and (ii) unanimous approval by all Member States.
TEDOR is therefore not only a fiscal proposal. It touches directly on tax sovereignty, public-health policy, and the overall architecture of EU financing.
Tax sovereignty matters, especially for excise taxes
Taxation remains primarily a Member State competence, enabling governments to tailor fiscal policies to their economic structures, income levels, consumption patterns, and health-policy objectives. This is particularly important for excise duties, which are among the most effective tools for discouraging harmful consumption, regulating the affordability of the most dangerous products and ideally funding prevention and treatment programmes.
In practice, however, tobacco excise revenues in many countries do not systematically flow back into prevention or cessation programmes; they are absorbed into general government spending. The TEDOR debate provides an important moment to reflect on this gap.
If excise taxation is to remain an effective public-health instrument, Member States must preserve sufficient strategic flexibility, rather than treating excise duties primarily as a shared revenue stream between national and EU levels.
Technical and political risks
TEDOR is closely linked to the ongoing revision of the Tobacco Excise Directive. A process that already involves several complex issues:
- unclear or inconsistent product definitions, especially for e-cigarette refills, heated tobacco, and nicotine pouches;
- an incomplete PPP adjustment mechanism that does not adequately reflect income differences across Member States;
- pressure toward higher minimum tax rates that may disproportionately affect lower-income economies and potentially expand the illicit market.
Committing part of national revenues to the EU budget while the underlying regulatory framework remains uncertain would introduce both economic and political risks.
Why differentiated taxation still matters
From a public-health perspective, not all nicotine or tobacco products carry the same level of risk. Evidence-based taxation (with differentiated rates according to relative harm) is essential. It:
- encourages smokers to switch to less harmful alternatives,
- may reduce long-term healthcare costs,
- and helps governments better target harm-minimizing strategies.
Highly rigid harmonisation or uniform minimum rates (especially when linked to a new EU revenue stream) could undermine these health-oriented policy tools.
Administrative burden and competitiveness
TEDOR would also introduce new reporting and verification obligations, more complex reconciliation and auditing procedures and potential disputes over definitions and classification.
At a time when European businesses and Member States consistently emphasise the need for regulatory simplification, adding another layer of administrative complexity to the excise system risks working against the EU’s stated goal of improving competitiveness.
TEDOR represents a response to a genuine challenge – finding sustainable revenue streams for the EU budget. Yet any proposal that reallocates national excise revenues must be carefully weighed against its implications for public-health policy, tax sovereignty, and administrative efficiency.
If Europe is to maintain a fiscal environment that supports competitiveness, effective harm minimizing, and policy flexibility, new own-resource proposals must be assessed not only through the lens of EU budget needs, but also through their real-world impact on Member States and their ability to pursue coherent and effective health and fiscal strategies.
Written by Michael Fanta