European Union Budget
The European Union budget is drawn up on an annual basis and charts the Community’s income and expenditure.
The Community budget for 2004 amounts to around EUR 112 billion, 45% of which is allocated to the Common Agricultural Policy and 34% to regional policy. This sum represents less than 1% of the gross national income (GNI) of the European Union of 25 countries.
The Community’s general budget includes all income and expenditure the EU has or may have within the European Community. This budget largely finances measures coming under the first pillar (Community cooperation) and the additional costs of the EU institutions for administering the work of the other two pillars (common foreign policy and police and criminal cooperation).
Income and expenditure in the EU budget must balance. The Community is not authorised to resort to borrowing to cover its budget expenditure. Since 1988, a multiannual financial framework has established a ceiling for and the composition of expenditure for several years in order to avoid slippage. This ceiling is fixed in proportion to Member States’ total gross domestic product (GDP), a figure that amounts to 1.27% of GDP for the period 2000-2006.
Income and expenditure
The European Union does not levy any taxes itself. Income arises essentially from four own resources made available by the Member States: customs duties, agricultural levies, VAT resource calculated from the harmonised value added tax base and a supplementary balancing resource known as GDP resource.
There are two types of budget expenditure: a) compulsory expenditure arising directly out of Union regulations (e.g. Common Agricultural Policy subsidies) and b) non-compulsory expenditure (e.g. structural fund subsidies and administrative expenditure). This division is connected in part to the division of budgetary power between the European Parliament and the Council of Ministers. Parliament has the final word on non-compulsory expenditure.
The Council of Ministers and the Parliament share powers in budget matters. The treaties establish an annual procedure lasting from 1 September to 31 December:
the Commission submits a preliminary draft to the Council of the Union at which the Budget Council meets;
after discussion and adjustments, if any, the Council of Ministers adopts a draft budget which it forwards to the Parliament;
at first reading, the Parliament may decide on proposed amendments to compulsory expenditure with an absolute majority of votes cast, and on amendments to non-compulsory expenditure with a majority of MEPs. It is then referred back to the Council;
at second reading, the Council decides the amount of compulsory expenditure while Parliament decides the amount of non-compulsory expenditure;
the President of the Parliament decides the budget, while the Parliament also has the power to reject it with an absolute majority of its members and three-fifths of the votes cast.
Responsibility and control
The Treaty of Rome gives the Commission responsibility for proper and effective overall use of the budget. The Anti-Fraud Office (OLAF) has been in operation since 1999 and exercises the Commission’s powers in fraud inquiries.
The EU budget is executed 80% or 85% on behalf of the Union by the national authorities of the Member States. In accordance with the Treaty of Rome, the Member States are responsible for combating fraud against the economic interests of the EU in the same way as they combat fraud at national level. The States undertake to cooperate with the Commission and OLAF.
The EU’s financial management is overseen by the Court of Auditors of the European Communities, which draws up an annual report for the Council of Ministers and the Parliament. The Parliament decides to grant a qualified discharge to the Commission for executing the Community budget for the preceding financial year on the basis of this annual report.
The Treaty establishing a Constitution for Europe envisages several significant changes in budget procedure:
The EU budget and multiannual financial framework are to be established by a European law for a period of at least five years.
The distinction between compulsory expenditure, determined by the treaties or by legislation laid down by virtue thereof, and non-compulsory expenditure is disappearing, thus increasing the powers of the European Parliament.
At the same time as the Council, the Parliament examines the draft budget submitted by the Commission. If the Council of Ministers and Parliament do not reach an agreement, a Joint Arbitration Committee is asked to approve a joint draft.
Note: the above information was from 2005.