Own resources. The European Union and its institutions are essentially funded from own resources, i.e. revenue that the EU receives as of right. These fall into three categories: traditional own resources (customs duties, agricultural duties and sugar levies), a VAT-based resource (a proportion of each Member State’s harmonised VAT base), and a resource based on Member States’ gross national income. The GNI-based resource is variable, being designed to ‘top-up’ the revenue obtained from the other sources in order to meet expenditure for a given year. A special mechanism for correcting the budgetary imbalance of the United Kingdom (the UK rebate) is also part of the own resources system.
Financial perspective. The financial perspective (perspectives financières) is a mechanism whereby Parliament, the Council and the Commission agree in advance on the main budgetary priorities for the following period, defining the revenue and expenditure ceilings within which each annual budget is drawn up. A financial perspective is drawn up to cover a seven-year period (e.g. 2000 to 2006, 2007 to 2013).
Title and parts. The General Budget of the European Union, which does not include the European Development Fund (see 19.10), is often simply called the budget (note lower case). The word ‘budget’ is usually preferable to ‘budgetary’ in adjectival usage (budget heading, budget year, budget expenditure), but note ‘budgetary authority’ (the Council and Parliament acting in tandem) and Parliament’s ‘Committee on Budgetary Control’.
The principles underlying the budget and the rules governing it are contained in the Financial Regulation (Council Regulation (EC, Euratom) No 1605/2002) and subsequent implementing regulations. Title III of that Regulation sets out the procedure for drawing up and approving the budget.
The preliminary draft budget prepared by the Commission becomes the draft budget after a first reading by the Council. The draft goes to Parliament for a first reading; Parliament makes amendments (amendements) to non-compulsory expenditure and proposes modifications (modifications) to compulsory expenditure. Each institution in turn gives the draft a second reading. For details of this procedure, see Chapter 3 (the EU’s Annual Budget) of the Treaty on the Functioning of the European Union.
Each EU institution has its own section of the budget, divided into revenue and expenditure and then into titles, chapters, articles and items. The Commission budget is by far the largest and is published in a separate volume. The expenditure section is divided by policy area, with administrative expenditure allocated to the individual titles.
Expenditure and appropriations. All expenditure is either compulsory (dépenses obligatoires), i.e. derived from the Treaties, or non-compulsory (dépenses non-obligatoires). Compulsory spending is mainly on agriculture.
Most funds allocated to EU policies are operating appropriations (crédits opérationnels), usually differentiated (crédits dissociés) where operations span several years. Headings then contain two amounts: payment appropriations (crédits de paiement) and commitment appropriations (crédits d’engagement), with a schedule of projected payments by year. The terms appropriations for commitments (crédits pour engagements) and appropriations for payments (crédits pour paiements) are used to designate differentiated plus non-differentiated appropriations.
Note that the EU is in the process of switching to activity-based budgeting (budget sur base d’activités) and accrual accounting (comptabilité d’exercice).
Unused appropriations. As a rule all unused appropriations lapse (sont annulés) at the end of the year. Carryovers (reports) require a special decision. When commitments are cancelled (dégagés) because projects are abandoned, the appropriations lapse but may be made available again (reconstitués) by special decision of the budgetary authority.
FUNDS FINANCED FROM THE BUDGET
Agricultural Funds. The common agricultural policy (CAP) is financed by the European Agricultural Guarantee Fund (EAGF), which finances direct payments to farmers and measures to regulate agricultural markets such as intervention and export refunds, and the European Agricultural Fund for Rural Development (EAFRD), which finances the Member States’ rural development programmes. Although these two funds have now replaced the former European Agricultural Guidance and Guarantee Fund (EAGGF), you should note that many documents relating, for example, to disputed payments and financial corrections still refer back to the EAGGF.
Structural Funds. Structural assistance is provided through the Structural Funds (note capitals), which comprise the European Regional Development Fund (ERDF) and the European Social Fund (ESF). The EAGGF (Guidance Section) and the Financial Instrument for Fisheries Guidance (FIFG) were previously also classed as Structural Funds, but have now been replaced by the European Agricultural Fund for Rural Development (EAFRD) and the European Fisheries Fund (EFF), which now form part of the common agricultural and fisheries policies, respectively.
For more details, see also the Commission’s regional policy website.
Cohesion Fund. The purpose of the Cohesion Fund is to support projects designed to improve the environment and develop transport infrastructure in Member States whose per capita GNP is below 90 % of the EU average.
European Investment Fund. The European Investment Fund (EIF) secures financing for small and medium-sized enterprises (SMEs).
European Development Fund. The European Development Fund (EDF) finances most of the EU’s cooperation with developing countries. The Fund is fed by the Member States; it does not come under the general EU budget, though a heading has been reserved for it in the budget since 1993. The EDF is not a permanent fund; a new one is concluded every five years or so.
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