Budget

Budget in Europe

Description of Budget

The Concise Encyclopedia of the European Union describes budget in the following terms: [1] The Treaty of Rome decrees that the Community must run a balanced budget. On the revenue side, to give a degree of financial independence, it was agreed in 1970 that contributions from member states should be replaced by a system of ‘own resources’. These would belong by right to the Community but would be collected on its behalf by the member states. There was a further revision in 1988 after the trade liberalisation introduced by the Single European Act had reduced the income from duties and levies. Currently, own resources consist of four classes of revenue:

Tariffs on imports

Agricultural levies and sugar duties

A percentage of each member state’s VAT revenue (as determined by a special formula)

Member state contributions related to their own GDP.

Of these revenue streams, the first two, known as the ‘traditional resources’, account for a declining share, currently under 20%. The VAT revenue is being reduced annually as a proportion of the whole: at its height it accounted for over 60% of the budget, but by 1999 this had fallen to under 40%. The GDP-related revenue, originally a mere balancing item, is rising rapidly and will soon be financing approximately half the budget. The overall effect of these changes has been an improvement in the fairness of member states’ contributions, which in future should be a better reflection of national wealth.

The budget is driven by the expenditure plans, which are drafted by the Commission, approved by the Council of Ministers and then read by the European Parliament, which proposes amendments and returns the budget to the Council. An artificial, but not clearcut, distinction between ‘compulsory’ and ‘non-compulsory’ spending determines the next phase of negotiation (the Council has the final say on compulsory spending, which includes agricultural price support, and the Parliament has the final say on non-compulsory spending). Lastly, the Parliament either adopts or rejects the budget. If a budget is in limbo, awaiting further amendments or the resolution of differences, expenditure is eked out month by month at the rate of one-twelfth of the previous year’s spending.

Of the total expenditure (some 684 billion in 1998) agricultural price support accounts for just under 50%; the structural funds for about 33%; internal policies (mainly research) for 6%; ‘external action’, or development assistance, for 5%; and administration for 5%. No other items are significant. The overall budgetary proportions are set by heads of government, meeting as the European Council, the last such financial perspective being agreed at the 1992 Edinburgh summit, covering the years from 1993 to 1999 and stipulating a 1% per year decrease in the percentage taken by agricultural guarantees.

I consider it an assumption of heroic proportions to believe that the Monetary Union can function in the long run … if the European Central Bank were isolated from financial and wages policy. Dr Hans Tietmeyer, president of the Bundesbank, Freiburg, 13 January 1997

Despite current insistence on budgetary discipline and a boost since 1993 from rising world agricultural prices, the wider picture is that Community spending has risen from 0.03% of the member states’ aggregate GDP in 1960 to 0.53% in 1973 and around 1.20% in 1999 (with an agreed ceiling of 1.27%) – an increase in real terms of some 40 times.

The progressive transfer of powers from national governments to the EU is likely to lead in the long run to demands for a further expansion of the revenue base, with more direct access to national taxpayers. Defence expenditure, for example, would rise sharply if the Common Foreign and Security Policy were to develop substance (see more in this European encyclopedia). The enlargement of the EU by the addition of poorer countries from Eastern Europe will also increase the cost of the Common Agricultural Policy and the need for structural funds. For the moment, more ambitious spending goals, which would require the unanimous approval of the Council of Ministers as well as the consent of national parliaments, are off the agenda. Nevertheless, integrationists recall with nostalgia the 1977 MacDougall Report, which reckoned a small Community spending target at up to 7% of the total GDP of the member states and a large target at up to 25%, that is, from five to 20 times the present budget level. (See also Contributionsand Fraud.)

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Notas y References

  1. Based on the book “A Concise Encyclopedia of the European Union from Aachen to Zollverein”, by Rodney Leach (Profile Books; London)

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