THE BUDGET OF EU

The budget of EU

I.           The expenses made from the budget

Actions and projects funded by the EU budget reflect the priorities set by the EU countries at a given time. These are grouped under broad spending categories (known as headings) and thirty-one different policy areas.

The EU budget finances actions and projects in policy domains where all EU countries have agreed to act at Union level. Such decisions are taken for very practical reasons. Joining forces in these areas can yield greater results and costs less.

There are other policies, however, where the EU countries decided not to act at Union level. For example, national social security, pension, health or education systems are all paid for by national, regional or local governments. The 'subsidiarity principle' ensures that activities best managed at national, regional or local level are funded at the most appropriate level and that the Union does not intervene.

a. For growth and jobs

For the next seven years, the EU countries have decided to dedicate a considerable part of their joint efforts and of the EU budget to creating more economic growth and jobs. Sustainable growth has become one of the main priorities of the Union. The EU economy needs to be more competitive and less prosperous regions need to catch up with the others.

Over the period 200713, out of every euro spent from the EUs annual budget, eight cents will go to make the EU more competitive.

Achieving long-term growth also depends on tapping and increasing the EUs growth potential. This priority, known as 'Cohesion', calls for helping especially less advantaged regions transform their economy to face global competition. Innovation and the knowledge economy provide an unprecedented window of opportunity to trigger growth in these regions. Out of every euro spent, 36 cents will go to such cohesion activities.

b. Natural resources

Thanks to their geographic and climatic diversity, the EU countries produce a large variety of agricultural products, which European consumers can buy at reasonable prices. The EU efforts in this field have two main goals. First, what is produced must correspond to what consumers want, including high safety and quality for agricultural products. Second, on the production side, the farming community should be able to plan and adapt production to consumers demand while respecting the environment.

In addition, a successful management and protection of our natural resources must also include direct measures to protect the environment, restructure and diversify the rural economy and promote sustainable fishing. After all, animal infections, oil spills and air pollution do not stop at national borders. Such threats require extensive action on many fronts and in several countries. Over the period 200713, 43 cents out of every euro will be spent from the EU budget each year in favour of our natural resources.

c. Fundamental freedoms, security and justice

Similarly, the fight against terrorism, organised crime and illegal immigration is much more effective when EU countries share information and act together. The EU strives for a better management of migration flows into the Union and extensive cooperation in criminal and judicial matters as well as secure societies based on the rule of law. About one cent in every euro from the EU budget will be spent to this end.

d. Being European: Debate, dialogue and culture

More than 495 million of people live in the EU. They speak many different languages and have different cultural backgrounds. Together they form the invaluable wealth of the European Union: cultural diversity built on common values. The EU budget promotes and protects this cultural heritage and richness, while encouraging active participation in social debates around us. It also aims to protect public health and consumer interests. About one cent in every euro will go to such activities under this heading known as Citizenship.

e. Global player

The impact of EU funds does not stop at our external borders. For many, the EU budget delivers the most needed emergency aid in the aftermath of a natural disaster. For others, it is a long-term assistance for prosperity, stability and security. About six cents in every euro go to cooperation with countries about to join the Union, other neighbouring countries, and indeed to poorer regions and countries around the world.

f. Administrative costs

Around six cents in every euro are spent on running the European Union. This covers the staff and building costs of all EU institutions, including the European Parliament, Council of Ministers, European Commission, European Court of Justice and European Court of Auditors.

II. The sources of money

The European Union has its 'own resources' to finance its expenditure. Legally, these resources belong to the Union. Member States collect them on behalf of the EU and transfer them to the EU budget.

Own resources are of three kinds (the figures below refer to the forecasts for 2007).

• Traditional own resources (TOR) these mainly consist of duties that are charged on imports of products coming from a non-EU state. They bring in approximately EUR 3 billion or 15 % of the total revenue.
• The resource based on value added tax (VAT) is a uniform percentage rate that is applied to each Member States harmonised VAT revenue. The VAT-based resource accounts for 15 % of total revenue, or some EUR 17.8 billion.
• The resource based on gross national income (GNI) is a uniform percentage rate (0.73 %) applied to the GNI of each Member State. Although it is a balancing item, it has become the largest source of revenue and today accounts for 69 % of total revenue or EUR 80 billion.

The budget also receives other revenue, such as taxes paid by EU staff on their salaries, contributions from non-EU countries to certain EU programmes and fines on companies that breach competition or other laws. These miscellaneous resources add up to around EUR 1.3 billion, i.e. about 1 % of the budget.

The total EU revenue for 2007 amounts to some EUR 116.4 billion, while the total of the funds committed under different policies is slightly higher. The difference mainly results from the budgetary practice of the EU, where the European Commission commits, i.e. blocks, the total amount required for a multi-annual project in the first year of the project. The actual payments, however, are made in several instalments during the project period.

Revenue flows into the budget in a way which is roughly proportionate to the wealth of the Member States. The UK, the Netherlands, Germany, Austria and Sweden, however, benefit from some adjustments when calculating their contributions.

On the other hand, EU funds flow out to the Member States in accordance with the priorities that the Union has identified. Less prosperous Member States receive proportionately more than the richer ones and most countries receive more than they pay in to the budget.

III. The decision procedure of the budget

The Commission, Parliament and Council of Ministers have different roles and powers in deciding the budget.

As a first step, these three institutions conclude a binding agreement to ensure budgetary discipline, long-term planning and to enhance cooperation in connection with annual budgets. This interinstitutional agreement includes the multi-annual financial framework, which establishes annual upper limits (known as ceilings) per heading. Annual budgets must respect these ceilings.

The most recent financial frameworks cover the seven-year periods from 2000 to 2006 and 2007 to 2013. The budgetary procedure as established in the EU treaties lasts from 1 September to 31 December. In practice, it begins much earlier. For example, preparations for the 2007 budget started before the end of 2005.

There are two types of budget expenditure: compulsory and non-compulsory expenditure. Compulsory expenditure covers all expenditure resulting from international agreements and the EU treaties. All other expenditure is classified as non-compulsory.

The Council of Ministers has the final word on compulsory expenditure and the European Parliament on non-compulsory expenditure. The importance of this distinction has declined with successive interinstitutional agreements as they collaborate closely at all stages.

Commissions preliminary draft budget

All EU institutions and bodies draw up their estimates for the preliminary draft budget according to their internal procedures.

The Commission consolidates these estimates and establishes the 'preliminary draft budget', which takes into account the guidelines or priorities for the coming budget year. The Commission submits the preliminary draft budget to the Council of the Union in April or early May before the budget Council meets in July. The Council of Ministers and the Parliament must work on the basis of this proposal from the Commission.

Council's first reading of the budget

After a conciliation meeting with the Parliament, the Council of Ministers adopts the draft budget with amendments, if any, which is forwarded to the Parliament in September.

Parliaments first reading

At its first reading in October, the Parliament may decide to amend the Council's draft. It will discuss controversial matters in 'trialogue' meetings with the Council Presidency and the Commission beforehand. Parliament's first reading, along with its suggestions, is then referred back to the Council.

Councils second reading

Before its second reading in November, the Council has a further conciliation meeting with the Parliament and tries to reach an agreement on the whole of the budget. It then adopts its second reading.

Parliament adopts or rejects the budget (second reading)

The Parliament may modify the Councils latest text before it votes on the final budget in December. If approved, the President of the Parliament signs the budget into law. The Parliament may also reject the budget.

Similar procedures apply to the adoption of letters of amendment to the preliminary draft budget (presented when new information comes to light before the adoption of the budget) and of amending budgets (in the case of inevitable, exceptional or unforeseen circumstances occurring after the budget has been adopted).

IV. The structural funds

The Structural Funds are the primary source of European Union funding, with the exception of support for agriculture. Some 90% of the European Union finance available for projects goes to the Structural Funds.

Through the Structural Funds, the European Union aims to support those regions which are less developed or in industrial decline, and to support training schemes for those seeking re-entry into employment.

The present rules for Structural Funds apply from 2000 to the end of 2006. There are currently four main Structural Funds. These are:

1. European Regional Development Fund (ERDF): ERDF concentrates on less-favoured regions. The main focus is on productive investment, infrastructure and SME development. There are also considerable funds available to support infrastructure development in SIP areas and community based regeneration.
2. European Social Fund (ESF): ESF supports human resource development measures (training and skills development). The main aim is to promote a high level of employment and social protection, equality between men and women, sustainable development, and economic and social cohesion.
3. European Agricultural Guidance and Guarantee Fund (EAGGF): The EAGGF finances the Common Agricultural Policy and rural development.
4. Fisheries Instrument for Fisheries Guidance (FIFG): FIFG supports projects related to fisheries restructuring and marketing.

Objective Programmes

The four Structural Funds combine to fund Objective Programmes. There are currently three Objectives through which funding is allocated. The Objectives are:

Objective1
The Objective 1 Programme provides support for regions in Europe where development is lagging behind.

Objective2
The Objective 2 Programme provides support for areas undergoing economic and social conversion

Objective3
The Objective 3 Programme provides support to tackle long-term unemployment and social exclusion.