How is the EU budget managed?
Summary
On December 15, 2005, EU members agreed to fix the common budget to 1.045% of the European GDP. UK Prime Minister Tony Blair accepted to review the British rebate, negotiated by Margaret Thatcher in 1984. French President Jacques Chirac declared that this increase in budget will permit Europe to "finance common policies" such as the Common Agricultural Policy - which represents about 44% of the EU's spending - or the Research and Technological Development Policy. However, France's demand to lower the VAT in catering was refused.
The European Union Budget at a glance
The European Union Budget
Taxpayers' money is used by the Union to fund activities that all Member States and parliaments have agreed upon in the Treaties. A small amount – around 1% of the Union's national wealth, which is equivalent to about 235 Euro per head of the population – comes into the EU's annual budget and is then spent mainly for its citizens and communities.
A wide range of activities are funded in the Member States, for example in agriculture, fisheries, infrastructure (construction of roads, bridges and railways), education and training, culture, employment and social policy, environmental policy, health and consumer protection, research, to mention a few. Initiatives are also underway to offer EU citizens an area of freedom, security and justice without internal borders. Part of the EU budget is also spent on funding economic development around the world and on humanitarian aid to help non-EU countries afflicted by natural disasters and other crisis situations.
EU Budget is decided democratically
The annual spending plans are negotiated between the European Parliament and the Council of Ministers on a basis of a proposal by the Commission.
The budget covers the spending of all the Union's institutions. It fixes income and expenditure for the year, lists all the activities that are to be funded and sets out the total amounts of money and staff available for each. It also cites the authorising acts for each action. Before they can be implemented, almost all activities also require a Community law – an authorising act or legal base - proposed by the Commission, and agreed by the legislative authority – the European Parliament and the Council of Ministers together, in many cases.
EU budget revenue and expenditure are limited by agreement
EU spending is limited by the Treaties. The Union budget is not allowed to be in deficit, which means that revenue has to cover the whole cost of all the different activities. This revenue, or income, comes from three main sources: customs duties, a share of the harmonised value added tax (VAT) base of each Member State, and a further contribution from the Member States based on the size of their gross national income (GNI).
The amount of money which can be made available to the Union is limited by agreement of the Member States and parliaments. This ceiling is currently set at 1.24% of the Union's gross national income for payments made from the EU budget. As a comparison, about 45% of the Union's gross national income goes to national, regional and local public expenditure in the Member States.
EU spending is further limited by a multi-annual agreement between Members of the European Parliament, the Council of Ministers, and the European Commission. This agreement contains a "multi-annual financial framework". The recent ones cover spending plans for the seven-year periods from 2000 to 2006 and 2007 to 2013.
Proper management and control
The Commission implements the budget on its own responsibility, but shares most of the management with the Member States. A Community legal act – the Financial Regulation - agreed upon by the Member States sets out the rules for calling on, budgeting and using EU funding. All income and expenditure must be accounted for. Financial statements are drawn up showing the assets and liabilities of the Union and general and budget accounts are maintained.
Commission staff are largely organised into policy departments called Directorates-General – DGs for short - each of which is headed up by a Director-General. Staff of the DGs manage the EU programmes and activities in their particular policy area, in liaison with their counterparts in the Member States as necessary.
Audits are conducted both by internal auditors and by the external auditor (the European Court of Auditors). The Directors-General have to draw up a report each year, reviewing the work of their departments and commenting on the use made of the resources that were put at their disposal. These Annual Activity Reports are presented to the Members of the Commission and a report of them is transmitted to the budgetary authority, i.e. to the European Parliament and the Council of Ministers, by 15 June following each budget year.
Commission is accountable to Parliament for the use of the EU budget
Both the annual internal and external auditors' reports on the management of Union funds are sent to the European Parliament and to the Council of Ministers. Each year, under what is known as the "discharge procedure", the European Commission and the other EU institutions are accountable to the European Parliament for the use made of the resources at their disposal. The Commission is obliged to take follow-up action on the conclusions reached and recommendations made under the discharge procedure by the European Parliament and Council of Ministers. Parliament, Council and the Court check on these follow-up actions.