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The Budget of the European Union

The Budget of the European Union. Marc Oostens Honorary Director of the European Commission. Seminar on Budget and EU Funds Skopje, 14-15 May 2007. Objective of the presentation. To have a global view of the budget of the European Communities. Why a budget ? Who decides ?

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The Budget of the European Union

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  1. The Budget of the European Union Marc OostensHonorary Director of the European Commission Seminar on Budget and EU FundsSkopje, 14-15 May 2007

  2. Objective of the presentation To have a global view of the budget of the European Communities Why a budget ? Who decides ? How much and for what ? Who implements the budget ? Who controls ? To be able to consult and unterstand the annual budget IPA exemple The budget of the European Union - May 2007

  3. I. Financial Framework • II. Budget 2007 • III. Financial management The budget of the European Union - May 2007

  4. I. Financial framework 1. The legal framework 2. Financial perspectives 3. Own resources The budget of the European Union - May 2007

  5. I. The framework of the EU budget 1.The legal framework • EU Treaties set out basic principles, budget procedure, general goals of policies • Financial Regulation rules how to spend - financial management • Inter-institutional agreement with ‘Financial Perspectives’ defines mid-term priorities and expenditure ceilings for several years • Own resource decision determines what and how much to collect - financing mechanisms and revenue limit (‘own resource ceilings’) • Annual budgets determine expenditure in detail The budget of the European Union - May 2007

  6. 4. The EU as a global partner: 49,5 billion 5. Administration: 49,8 billion 3B. Citizenship: 4,1 billion 6. Compensations: 0,8 billion 1A. Competitiveness for growth: 74,1 billion 3A. Freedom, security & justice: 6,6 billion 2. Preservation & management of natural resources: 371,3 billion 1B. Cohesion for growth: 308,0 billion I. The framework of the EU budget 2. Financial framework 2007-2013 : 864,3 billion €(commitment appropriations at 2004 prices) (6%) (6%) (0,1%) (8%) (1% together) (36%) (43% / 34% marché PAC) The budget of the European Union - May 2007

  7. I. The framework of the EU budget 3. Own resources General budget : • 1958 - 1970 (Budgets EEC et ECSC):national contributions • since 1970 : own resources • Agricultural duties • Customs duties • VAT resources • 1985 : • UK rebate • 1988 : • New resource based on GNI • Ceiling for own resources fixed for several years (1,15 to 1,20 % GNI) The budget of the European Union - May 2007

  8. I. The framework of the EU budget 3. Own resources General budget : • 1993 : • Ceiling for own resources (1,20 to 1,24 % GNI) • 2000-2006 : • Ceiling for own resources remains 1,24 % GNI • VAT duties ↓ to max 0,5 % • 2007-2013 (Council decision : 14/15 December 2005) • Ceiling for own resources maitained : 1,24% of GNI • VAT duties reduced to 0,3% uniform except for AT,DE,NL,SE • Own resources rate of GNI uniform except NL,SE The budget of the European Union - May 2007

  9. Own resources 2007 • Customs & agricultural duties and sugar levies 15 % • VAT resources 15 % • Fourth resource (GNI) 69 % • Other (surplus, ...) 1 % Total budget 2007 = € 116 Bn (Payments) The budget of the European Union - May 2007

  10. The UK REBATE 1. Since 1984 UK receives back 66% of its net contribution 2. In 1970s UK was one of the poorer members but big contributor with little benefits from the CAP 3. Today: situation different but rebate still in place. (But some other net contributors’ shares in reimbursement reduced: D, AT, NL, S) 4. From 2007 to 2013, UK’s rebate on enlargement costs reduced. Without change, rebate would have grown three times faster than budget 5. Will come up in context of budget review 2008 The budget of the European Union - May 2007

  11. The future of the european Union’s own resourcesEP Report – March 2007 1. Shortcomings of the current financing system • 70 % through the GNI resource – not an own resource • « net budgetary balances » = pure approximation • MS ’contributions perceived as an addittional burden on national budgets • excessively complex (four resources, different rebates mechanisms) • Unanimity in decisions makes the result dependent of the must reluctant MS • Financial agreement 2007-2013 : proof of the failure of the system 2. First phase of the reform • equality between Member States • simplicity of presentation • solidarity and equal dignity amongst Member States • link between a reform of revenue and a review of expenditures 3. Second phase of the reform • creation of a genuine own resource for the European Union possible taxes taken in consideration : VAT, excise duties on motor fuel, excise duties on tobacco, alcohol, taxes on corporate profits, … The budget of the European Union - May 2007

  12. II. BUDGET 2007 1. Annual budget procedure 2. Budget principles 3. Types of appropriations 4. Budget priorities 5. The EU as a global player The budget of the European Union - May 2007

  13. Apr N-1 : Commission decision on Preliminary Draft Budget (PDB) July N-1 : Council 1st reading (Draft budget) Oct N-1 : EP 1st reading Nov N-1 : Council 2nd reading Dec N-1 : EP 2nd reading Budget N adopted II. BUDGET 2007 1. Annual budget procedure The budget of the European Union - May 2007

  14. The annual budget procedureEqual powers for Council and European Parliament The budget of the European Union - May 2007

  15. II. Budget 2007 2. Budget principles • Unity & accuracy • Annuality • Equilibrium • Unit of Account (€) • Universality • Specification • Sound financial management • Transparency The budget of the European Union - May 2007

  16. II. Budget 2007 Differences with national Budget Law 2. Budget principles • Unity:all revenue and expenditure are incorporated in a single budget • Equilibrium:between revenue and expenditure is respected mathematiclly when the budget is drawn up • Sound financial management : includes the principles of economy, efficiency and effectiveness • Unit of account : the budget must be drawn up and implemented in euro. The budget of the European Union - May 2007

  17. 3. Types of appropriations II. BUDGET 2007 • Compulsory and non-compulsory expenditure • Administrative and operational appropriations 3. Commitment appropriations Payment appropriations 4. Differentiated appropriations Non-differentiated appropriations The budget of the European Union - May 2007

  18. Compulsory v Non-compulsory Compulsory expenditure = Council Compulsory expenditure = Council • Common agriculture policy • International agreements • Administration (excluding salaries) Non-compulsory expenditure = Parliament • All other expenditure The budget of the European Union - May 2007

  19. Administrative v operational The traditional budget structure, part A covering administrative resources part B covering operational expenditure The Activity Based Budgeting resources allocation by activity • Advantages of ABB • COHERENCE in the translation of political priorities • TRANSPARENCY in the allocation of resources • DECENTRALIZATION in managing resources • ACCOUNTABILITY of managers • The Activity Based Budgeting is the budgetary component of the wider Activity Based Management (ABM) • 2004 the first Budget presented in ABB nomenclature The budget of the European Union - May 2007

  20. Commitment / Payment CA = Commitment appropriations • The value of LEGAL COMMITMENTS (contracts or grant agreements) the Commission is authorised to sign during the budget year PA = Payment appropriations • The value of PAYMENTS due to be paid during the budget year, on the basis of the legal commitments signed the same year or in previous years The budget of the European Union - May 2007

  21. Differentiated v Non-differentiated DA = Differentiated appropriations • Payments possible over the life-time of the project • Policy implementation : operational expenditure • Money made available annually NDA = Non-differentiated appropriations • Annual expenditure including all administrative expenditure (+ the Guarantee Section of the EAGGF) • Payments made year N or N+1 The budget of the European Union - May 2007

  22. II. BUDGET 2007 4. Budget priorities : focus on growth and jobs € 126.5 billion or 1.08% of GNI The budget of the European Union - May 2007

  23. Budget 2007 includes all the Institutions • Parliament • Council • Commission (Section III) • Court of Justice • Court of Auditors • Economic and Social Committee • Committee of the Regions • Ombudsman • European Data-protection Supervisor Commitment appropriations : 126,5 Bn Euro Payment appropriations : 115,5 Bn Euro The budget of the European Union - May 2007

  24. 5. EU as a global player(Heading 4) 2007: EUR 6.8 billion; 5% of budget II. Budget 2007 Help candidate countries prepare for EU membership Cooperate in security and defence Develop stable and prosperous ‘neighbourhood’, strengthen ties across EU’s external borders Support economic development and the fight against poverty + European Development Fund The budget of the European Union - May 2007

  25. Instrument for Pre-accession AssistanceIPA COUNCIL REGULATION (EC) No 1085/2006 of 17 July 2006 • Components • Transition assistance finance capacity and institution buildings • Cross-border cooperation Promoting good neighbourly relations, fostering stability, security and propsperity • Regional development Financing the type of actions provided for the Regional Development fund • Human resources development Financing the type of actions provided for the European social fund • Rural development Financing the type of actions provided for the European agricultural fund for Rural development The budget of the European Union - May 2007

  26. Instrument for Pre-accession AssistanceIPA COUNCIL REGULATION (EC) No 1085/2006 of 17 July 2006 Management and implementation • The Commission is responsible for the implementation of the Regulation • Financing agreements between the Commission and the beneficiary country • Procurements contracts or Grants agreement with national or international public sector bodies / natural or legal persons • Employment contracts • Cross-border programme : delegation of tasks to Member States • (shared management) The budget of the European Union - May 2007

  27. Title 22 — Enlargement Overall objectives This policy area governs the actions, measures and initiatives necessary to ensure that candidate and potential candidate countries stay on course to achieve the targets set with and for them by the European Council. This will involve: full accession negotiations with Turkey and Croatia and further steps towards the opening of accession negotiations with the former Yugoslav Republic of Macedonia which was granted candidate status by the December 2005 European Council, … The budget of the European Union - May 2007

  28. Article 22 02 01 — Transition and institution-building assistance to candidate countries The likely schedule of payments vis-à-vis commitments is as follows: The budget of the European Union - May 2007

  29. Remarks New Article Under the new Instrument for Pre-Accession Assistance (IPA), this appropriation is intended to cover the component ‘transition and institution building’ for candidate countries. The main objective is to develop an effective capacity to implement the acquis communautaire, in particular by means of : strengthening democratic institutions, as well as the rule of law, including its enforcement, the promotion and the protection of human rights and fundamental freedoms and enhanced respect for minority rights, the promotion of gender equality and non-discrimination,public administration reform, including the establishment of a system enabling decentralisation of assistance management to the beneficiary country in accordance with the rules set down in the Financial Regulation, economic reform; the development of civil society and social inclusion,reconciliation, confidence-building measures and reconstruction. Part of this appropriation is intended in particular to support networks and partnerships of public and private not-for-profit organisations with a view to exchanging knowledge and best practices in the field of sustainable local development, micro-credit, environmental protection and the fight against poverty. This appropriation may cover any eligible cooperation measures that are not expressly covered by other components of the IPA Regulation and for cooperation between the components. Legal basis Council Regulation (EC) No 1085/2006 of 17 July 2006 establishing an Instrument for Pre-Accession Assistance (IPA), (OJ L 210, 31.7.2006, p. 82). The budget of the European Union - May 2007

  30. III. Financial management 1. Implementation of the budget 2. Presentation of the accounts 3. Annual discharge The budget of the European Union - May 2007

  31. III. Financial management 1. Implementation of the budget • Principle : legal base A basic act must first be adopted before the appropriations entered in the budget for any Community action may be used.(Art. 49 FR). • Exceptions (Art. 49, 2 FR) : (i) Pilot schemes (max. 2 years) < 32m€ (ii) preparatory actions (max. 3 years) < 75m€ new budget lines < 30m€ (iii) Autonomous actions of the Commission (studies, social dialogue, …) (iv) administrative appropriations • The amounts of appropriations are determined in (i) legislative financial statement (indicative) (ii) codecision act (reference) The budget of the European Union - May 2007

  32. III. Financial management 1. Implementation of the budget The Commission implement the budget (Art. 53 FR) • On a centralised basis Implementation directly or indirectly by the Commission departments 2 By shared management Implementation delegated to Member states • By decentralised management Implementation delegated to third countries 4. By joint management with international organisations The budget of the European Union - May 2007

  33. III. Financial management 1. Implementation of the budget • Procurements Public contrats for pecuniary interest in order to obtain the supply of assets, the execution of work or the provision of services subject to call to tender • Grants Direct financial contributions from the budget in order to finance - an action intended to help achieve an objective of EU - the functioning of a body which pursues an aim of general European interest subject to annual programme and a call for proposals The budget of the European Union - May 2007

  34. III. Financial management 2. Presentation of the accounts • The financial statements of the Institutions in accordance with accrual-based accounting 2. The reports on the implementation of the budget all budget operation of the year in the same presentation as the budget : commitments and payments • Report on budgetary and financial management - the achievement of the objectives for the year - the financial situation and events of significant influance The budget of the European Union - May 2007

  35. III. Financial management 3. Annual discharge • Political accountability: Parliament decides on ‘discharge’ of Commission for correct use of EU funds on basis of : • Independent external control: European Court of Auditors exercises annual audit of EU budget • Recommandation of the Council 2. Reporting: Commission publishes annual accounts of the EU and monthly statements on budgetary execution 3. Transparency in the use of funds: recipients of all EU funds will be disclosed under new financial regulation The budget of the European Union - May 2007

  36. III. Financial management 3. Annual discharge • External audit - Special reports +Annual report of the European Court of Auditors - Contains an assessment of the soundness of financial management - Final report transmitted to the European Parliament and the Council (31 October of year n + 1) - A section for each Institution • Discharge Recommandation from the Council Discharge from the European Parliament (30 April of year n + 2) The budget of the European Union - May 2007

  37. Court of auditors report http://www.eca.eu.int/audit_reports/annual_reports/docs/2005/ra05_en.pdf The Court of Auditors is required to provide Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions. The Court provided its first statement of assurance, at the same time as its annual report for the year 1994 (15 November 1995) 2005 annual report The 2005 consolidated accounts of the UE general budget present fairly the financial position of the European Communities as at 31 December 2005 Concerning the legality and regularity of the underlying transactions, The Court only provides an unqualified opinion on EU revenue, commitments, administrative expenditure and pre-accession strategy. For most of the payment budget the Court is not in a position to provide an unqualified opinion. The situation is caused by deficiencies in internal control, in particular in Member States for shared management expenditure The budget of the European Union - May 2007

  38. Discharge procedure http://www.europarl.europa.eu/comparl/cont/adopt/discharge/2005/default_en.htm The discharge is the decision taken by the authority empowered (Parliament), releasing the executive (Commission) from any further liability in respect of its management of the budget, thus marking final closure of the budget The main responsibility of the Budgetary Control Committee (COCOBU or CONT) is preparing and proposing the annual discharge decision, and closure of accounts to be given, by Parliament to the Commission, and to the other Community institutions and bodies Timetable of the discharge procedure 2005 Presentation of ECA annual report : 23 October 2006 Hearings of Commissioners : November 2006 – January 2007 Draft reports : February 2007 Adoption in Committee (CONT) : March 2007 Adoption in Plenary session of the Parliament : 24 April 2007 The budget of the European Union - May 2007

  39. For more information http://ec.europa.eu/budget/index_en.htm The budget of the European Union - May 2007

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