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EU Budget and Budgetary Controls


There are three main components of the EU budget system: firstly, the financial perspective, which determines the medium-term expenditure ceiling; secondly, the own resources decision, which governs the amount and structure of revenue in the EU budget; and thirdly, the annual budget, which allocates the budget appropriations to the individual budget headings.

The financial perspective was introduced at the end of the 1980s. As the frame of reference for the annual budgetary procedure, it ensures that the growth of expenditure is controlled and that the structure of expenditure is balanced at Community level. The financial perspective sets the ceiling for both overall expenditure and the individual expenditure areas. The latter include, among others, the Common Agricultural Policy and the Structural and Cohesion Policy, internal and external policies and administrative expenditure. The current financial perspective covers the years 2000-2006.

The own resources decision governs the financing of the EU budget. The current own resources decision fixes the upper limit of revenue at 1.24 % of the Community's Gross National Income (GNI). This revenue essentially comprises four components: customs duties and agricultural levies, which make up the traditional own resources, and contributions calculated on the basis of the national VAT base and on GNI. In the mid-1980s, the United Kingdom was granted a specific correction mechanism with regard to payments to the EU budget (UK rebate).

Actual expenditure and its allocation to the individual budget headings are decided in the annual budget. The expenditure ceilings for the individual headings agreed in the financial perspective must not be exceeded. The preparation of the annual budget is a complicated procedure, which begins with the submission by the Commission of a preliminary budget draft in April and ends with the formal adoption of the budget by the European Parliament in December. The intervening period is taken up with intensive consultations in the Council and European Parliament, which have shared responsibilities and together constitute the EU budgetary authority.

Under the EU Treaty, the Council has the final say on compulsory expenditure and the Parliament (in addition to formally adopting the budget) decides on non-compulsory expenditure. The former relates to expenditure resulting from the Treaty or from a legal act adopted on the basis of the Treaty, such as expenditure under the Common Agricultural Policy. Non-compulsory expenditure is expenditure that does not result from the Treaty or from a legal act adopted on the basis of the Treaty, such as expenditure under the Structural and Cohesion Policy and expenditure on research.

The European Court of Auditors presents an annual report on the implementation of the budget and issues a statement of assurance on the soundness of financial management and on the legality and regularity of the transactions. The audit report and statement of assurance form the basis for the final discharge of the Commission which, under the EU Treaty, is responsible for implementing the budget. The European Parliament gives the Commission the final discharge for execution of the budget, following a corresponding Council recommendation.

 

Date: 22.12.2005