A minimum increase of 5% in the EU budget is needed if the bloc is to complete all its agreed objectives, such as putting in place a common diplomatic service and boosting its economy, the Parliament said.
Otherwise, EU countries will need to state clearly which policies they are ready to drop, MEPs said, citing possible cuts in regional and farm spending which together make up the bulk of the EU's budget.
"We need to put an end to the bad habit of accepting political commitments at European level and then denying their financing," said Salvador Garriga Polledo (European People's Party), the Spanish MEP steering the report on the seven-year budget through the EU assembly.
"When we are asking for increases, it is not because we are inventing things," added German member Jutta Haug (Socialists & Democrats), chair of the Parliament's special committee on policy challenges, which has worked for a year to produce the report. "We just want a realistic and implementable budget," she said.
The resolution backing the committee's conclusions was adopted on Wednesday (8 June) by 468 votes to 134, amid 54 abstentions.
Budget proposals due at end of June
The European Commission is set to table proposals on 29 June regarding the EU's long-term budget for the period 2014-2020.
But EU paymasters, including the UK, France, the Netherlands, Finland and Germany, signalled their intention to freeze EU spending at a summit last December.
The budget freeze, a hobby horse of UK Prime Minister David Cameron, was justified to match the austerity drives currently being implemented in EU countries to fend off the public debt crisis.
But for the Parliament, budget cuts cannot be agreed unless some key spending programmes are slashed.
"MEPs urge the member states who advocate a frozen or reduced long-term budget to state exactly which policy priorities they want to drop in order to make room for a budget cut," the Parliament said in a statement.
New sources of funding
To fuel the 5% budget increase, the Parliament resolution calls for additional sources of funding, which for the first time would not rely on national contributions but also on a new system of "own resources".
These could for example draw revenue from a financial transaction tax. Moreover, MEPs called for an end to the UK and Danish rebates, as well as other "exceptions and correction mechanisms that have accumulated within the current system". And unspent EU money would not be returned to national governments like is currently the case.
Although unanimity will be required on the budget, giving every member country a right of veto, the Parliament recalls that its assent will also be needed to take the final decision. And it says it will make its approval conditional on the new system of own resources, to be tabled by the Commission on 29 June.
Options to fuel the EU's future budget include an EU tax which could take several forms: a tax on air transport or a share of new financial, corporate or energy taxes, as well as an EU VAT.