The budget of the European Union ( The Union's annual budget) is used to finance EU funding programmes (such as the European Regional Development Fund, the Cohesion Fund, Horizon Europe, or Erasmus+) and other expenditure at the European level.
The EU budget is primarily an investment budget. Representing around 2% of all EU public spending, it aims to complement national budgets. Its purpose is to implement the priorities that all EU members have agreed upon. It provides European added-value by supporting actions which, in line with the principle of subsidiarity and proportionality, can be more effective than actions taken at national, regional or local level.
The EU had a long-term budget of €1,082.5 billion for the period 2014–2020, representing 1.02% of the EU-28's Gross National Income (GNI)European Union, Integrated Financial Reporting Package Overview, Financial year 2017. 2018. https://europa.eu/!hK34QQ and of €1,074.3 billion for the 2021–2027 period.European Council conclusions, 10-11 December 2020 Retrieved 15 January 2021. The long-term budget, also called the Multiannual Financial Framework, is a seven-year spending plan, allowing the EU to plan and invest in long-term projects.
Initially, the EU budget used to fund mainly agriculture. In the 1990s, Member States and the European Parliament broadened the scope of EU competences through changes in the Union's founding Treaties. Recognising the need to support the new single market, they increased the resources available under the Structural Funds to support economic, social and territorial cohesion. In parallel, the EU enhanced its role in areas such as transport, space, health, education and culture, consumer protection, environment, research, justice cooperation and foreign policy.
Since 2000, the EU budget has been adjusted to the arrival of 13 new Member States with diverse socioeconomic situations and by successive EU strategies to support jobs and growth and enhanced actions for the younger generation through the Youth Employment Initiative and Erasmus+. In 2015, it has set up the European Fund for Strategic Investments (EFSI), "so called Juncker plan" allowing to reinforce investments in the EU.
The largest share of the EU budget (around 70% for the period 2014–2020) goes to agriculture and regional development. During the period 2014–2020, the share of EU spending on farming is set at 39%. In 1985, 70% was spent on farming. Farming's relatively large share of the EU budget is because it is the only policy funded almost entirely from the common budget. This means that EU spending replaces national expenditure to a large extent.
The second share of EU spending goes to regional development (34% for the period 2014–2020). EU funding for regional and social development is an important source for key investment projects. In some EU countries that have otherwise limited means, European funding finances up to 80% of public investment.European Structural and Investment Funds However, EU regional spending does not just help poorer regions. It invests in every EU country, supporting the economy of the EU as a whole.
6% of the EU budget goes for the administration of all the European Institutions, including staff salaries, pensions, buildings, information technology, training programmes, translation, and the running of the European School system for the provision of education for the children of EU staff.
EU budget lifecycle The EU budget is adopted through the budgetary procedure by the European Parliament and the Council of the European Union. The EU budget must remain within the limits set out in the Multiannual Financial Framework (MFF) and the Own Resource Celling.Article 312(1) of the Treaty on the Functioning of the European Union. The MFF is the EU's long-term budget. It is established at least for five years (usually seven years).
Adoption The European Commission submits the draft budget no later than 1 September each year. The Council of the European Union adopts its position no later than 1 October. If the European Parliament may accept the council's position or fails to take a decision within 42 days, then the budget is adopted. If the Parliament adopts its position then the Conciliation Committee is convened. The Conciliation Committee has 21 days to adopt a joint text if the committee fails to adopt a joint text or the joint text is not adopted within 14 days by the Council and the Parliament the budgetary procedure needs to start again.
Implementation The European Commission, in cooperation with Member States, is responsible for the implementation of the EU budget in accordance with the Financial Regulation.Article 317(1) of the Treaty on the Functioning of the European Union. The EU budget is implemented in accordance with the principles of unity and of budgetary accuracy, annuality, equilibrium, unit of account, universality, specification, sound financial management and performance and transparency.Title II of the Regulation (EU, Euratom) 2018/1046 of the European Parliament and of the Council of 18 July 2018 on the financial rules applicable to the general budget of the Union, amending Regulations (EU) No 1296/2013, (EU) No 1301/2013, (EU) No 1303/2013, (EU) No 1304/2013, (EU) No 1309/2013, (EU) No 1316/2013, (EU) No 223/2014, (EU) No 283/2014, and Decision No 541/2014/EU and repealing Regulation (EU, Euratom) No 966/2012. The EU programmes are managed in three ways:
direct management (the programmes are executed by the Commission directly or by its executive agencies), indirect management (third parties, such as international organisation, oversee the execution), or shared management (the Member States authorities oversee the execution).
Audit and discharge The Commission reports on how it has implemented the budget in various ways, most importantly by publishing the Integrated Financial Reporting Package, which consists of the annual accounts, the Annual Management and Performance Report, and other accountability reports.Integrated Financial Reporting Package
The annual discharge procedure allows the European Parliament and the council to hold the Commission politically accountable for the implementation of the EU budget. The European Parliament decides, after a recommendation by the council, on whether or not to provide its final approval, known as 'granting discharge', to the way the Commission implemented the EU budget in a given year. When granted, it leads to the formal closure of the accounts of the institution for a given year.
When deciding whether to grant, postpone or refuse the discharge, the Parliament takes into consideration the Integrated Financial Reporting Package prepared by the Commission along with the European Court of Auditors' Annual Report on how the budget has been spent and any relevant Special Reports from the Court. More particularly, every year the European Court of Auditors,European Court of Auditors which is the EU's independent external auditor, examines the reliability of accounts, whether all revenue has been received and all expenditure incurred in a lawful and regular manner, and whether the financial management has been sound.
The European Court of Auditors has signed off the EU accounts every year since 2007. In October 2018, the European Court of Auditors gave the EU annual accounts a clean bill of healthEuropean Court of Auditors signs off EU accounts for 11th time in a row for the 11th year in a row, finding them true and fair. The Court has given, for a second year in a row, a qualified opinion on the 2017 payments. The report thus shows further improvements in terms of compliance and performance, and confirms that the commission is on the right path. While a clean opinion means that the figures are true and fair, a qualified opinion means that there are minor issues still to be fixed. If Member States or final beneficiaries are found to spend EU money incorrectly, the Commission takes corrective measures. In 2017, the Commission recovered €2.8 billion, equal to 2.1% of the payments to the EU budget. Therefore, the actual amount at risk is below the 2% threshold, once corrections and recoveries have been taken into account.2% of any public budget is very high however hence the qualification.
Revenue
The EU obtains its revenue from four main sources: Traditional own resources: Customs duties on imports from outside the EU and levies collected on behalf of the EU. VAT-based own resources: comprising a percentage of Member State's standardised value added tax (VAT) base. GNI-based own resources: comprising a percentage of each member state's gross national income (GNI). Other revenue: including taxes from EU staff salaries, bank interest, fines and contributions from third countries.
Traditional own resources
Traditional own resources are taxes raised on behalf of the EU as a whole, principally import duties on goods brought into the EU. These are collected by the Member States and passed on to the EU. Member States are allowed to keep a proportion of the duty to cover administration (20%), 25% as per 2021. The European Commission operates a system of inspections to control the collection of these duties in Member States and thus ensure compliance with the EU rules.
In 2017, the EU's revenue from customs duties was €20,325 million (14.6% of its total revenue). A production charge paid by sugar producers brought in revenue of €134 million. The total revenue from TORs (customs duties and sugar levies) was €20,459 million (14.7% of the EU's total revenue).
Countries are liable to make good any loss of revenue due to their own administrative failure.
As per the 2021-2027 period an additional system of own resources will be introduced relying on levies collected by the EU.
VAT-based own resources
The VAT-based© European Union, Revenue section, EU Budget 2017 Financial Report, 2018. https://europa.eu/!hy73fY https://europa.eu/!hy73fY own resource is a source of EU revenue based on the proportion of VAT levied in each member country. VAT rates and exemptions vary in different countries, so a formula is used to create the so-called "harmonised VAT base", upon which the EU charge is levied. The starting point for calculations is the total VAT raised in a country. This is then adjusted using a weighted average rate of VAT rates applying in that country, producing the intermediate tax base. Further adjustments are made where there is a derogation from the VAT directive allowing certain goods to be exempt. The tax base is capped, such that it may not be greater than 50% of a Member State's gross national income (GNI). In 2017, eight Member States saw their VAT contribution reduced thanks to this 50% cap (Estonia, Croatia, Cyprus, Luxembourg, Malta, Poland, Portugal and Slovenia).
Member countries generally pay 0.3% of their harmonised VAT base into the budget, but there are some exceptions. The rate for Germany, the Netherlands and Sweden is 0.15% for the 2014-2020 period, while Austria also had a reduced rate in the 2007-2013 period.
The EU's total revenue from the VAT own resource was 16,947 million euros (12.2% of total revenue) in 2017.
Member States are required to send a statement of VAT revenues to the EU before July after the end of the budget year. The EU examines the submission for accuracy, including inspection visits by officials from the Directorate-General for Budget and Eurostat, who report back to the country concerned.