EU Budget and Budgetary Control

Although it represents only a small fraction of the total national income of EU countries, the EU budget is an important instrument to deliver common policy goals. The budget is used to fund a wide range of activities in the Member States, for example in agriculture and rural development, infrastructure building, education and research, employment and social policy, environmental protection etc. The budget also covers administration costs of the Union’s institutions. Part of the EU budget is spent on development cooperation and humanitarian aid to third countries.

In 2008, for the first time ever, the largest share of the EU budget (45%) was allocated to measures to boost economic growth and greater cohesion in the EU. Agriculture continues to receive over 40% of EU funds.

The EU budget revenue comes from three main sources: the traditional own resources, consisting mainly of duties charged on imports from third countries; a percentage of Member State’s VAT revenue; and a contribution from the Member States based on the size of their gross national income (GNI). The last category is the most substantial, accounting for nearly 70% of the total revenue. The EU budget is balanced by definition; that is, it is not allowed to run deficits.

The budget is determined by three main components. The Own Resources Decision sets the structure of the resources and limits the maximum amount of money which can be made available to the Union. This ceiling is currently fixed at 1.24% of the sum of all the Member States’ gross national incomes. The Financial Perspective, agreed on by the Commission, the Council and the European Parliament, defines the framework for the Community’s budget priorities over a period of several years. The current Financial Perspective covers the years 2007-2013. Finally, the annual budget determines the actual level of expenditure and the breakdown into the various budget headings.

The preparation of the annual budget begins with the submission by the Commission of a preliminary draft budget in May and ends with the adoption of the budget by the European Parliament in December. The Commission is responsible for the implementation of the annual budget and accountable for it to the European Parliament. An external audit of the use of resources is conducted by the European Court of Auditors.

In December 2005, the Commission was invited to undertake a fundamental review of the EU budget to be reported in 2008-2009. The review should cover all aspects of EU spending, including the Common Agricultural Policy, and of resources, including the UK rebate. The EU budget needs to be modernised in order to better reflect the changing political priorities and challenges facing Europe, such as globalisation, climate change, and migration. The reform should aim at increasing the added value of EU spending.

Last update: 16.8.2011 16:02

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