1.5.1.     The Community's revenue and expenditure

LEGAL BASIS

-   Treaties:

• tax revenues: Article 268 to 280 (199 to 209a) of the EC Treaty; Article 173 of the Euratom Treaty and Articles 49 to 53 of the ECSC Treaty,
• loans: Article 308 (235) of the EC Treaty; Articles 172 and 203 of the Euratom Treaty and Article 49 of the ECSC Treaty.

-   Decision of 21 April 1970, as replaced by the Decisions of 7 May 1985, 24 June 1988 and 31 October 1994.

-   Interinstitutional agreement of 6 May 1999 on budgetary discipline and improving the budgetary procedure.

-   Interinstitutional agreement of 13 October 1998 on the legal bases and implementation of the budget.

I.   REVENUE

OBJECTIVES

To provide the Community with a certain degree of financial autonomy.

ACHIEVEMENTS

1.    The ECSC levy
Since its establishment in 1952, the European Coal and Steel Community has been empowered to impose a levy on coal and steel production. The revenue from this levy constituted the Community’s first own resource. The Commission has sole responsibility for setting the rate of this levy as long as it does not exceed 1% of production. For higher rates, it must obtain authorisation from the Council, acting by a two-thirds majority. Given that the ECSC Treaty expires in 2002, various options for the future of this resource are currently under discussion.

2.    'Traditional' own resources
These were created by the Decision of 1970 and have been collected since then. They consist of:

• agricultural levies and sugar production levies, which in 2000 brought in approximately EUR 2 billion (2.3% of the budget);
• customs duties, which are collected at the Community’s external borders and amounted to approximately EUR 11.1 billion in 2000 (12.4% of the budget).

3.   New own resources

a.   The VAT levy
Although provided for in the 1970 Decision, this levy could not be applied until 1979, when the VAT systems of the Member States were harmonised. It consists in the transfer to the Community of a percentage of the VAT collected by the Member States. The rate was initially set at 1% of the VAT base and then raised to 1.4% in 1984, before being brought back down to 1% in 1999. The VAT base has been capped since 1988, initially at 55% of each Member State’s GNP, reduced to 50% in 1999. The VAT levy in 2000 brought in approximately EUR 32.5 billion (36.3% of the budget).

b.   The levy on the Member States' GNP and the ceiling on own resources
This ‘fourth own resource’ was created by the Decision of 1988 and consists of the levy on the Member States’ GNP of a percentage set by each year’s budget. However, it is only collected if the other own resources do not fully cover expenditure.
In 2000 the levy amounted to EUR 43.2 billion (48.3% of the budget).

The 1988 Decision also placed an overall ceiling on own resources, expressed as a percentage of the total of the Member States’ GNP. This ceiling was initially set at 1.15%, before being raised to 1.2% in 1992 and 1.27% in 1999. The ‘fourth own resource’ therefore cannot exceed the difference between the maximum authorised percentage of GNP (1.27%) and the other own resources.

4.   Loans
The ECSC and Euratom Treaties expressly empower the Community to contract loans. Although the EC Treaty does not, Article 308 (235) thereof has been used for this purpose and loans have greatly increased in volume since 1978.

II.   EXPENDITURE

1.   Basic principles
The Community budget is based on the traditional budgetary rules of annuality, unity, no earmarking of particular receipts for particular expenditure, no contraction between expenditure and receipts and the specification of expenditure (each appropriation is allocated to a particular kind of expenditure).

Nonetheless, application of the annuality rule is circumscribed by the concept of dissociated appropriations which distinguish commitment appropriations, covering the total cost during the current financial year of legal obligations contracted for activities lasting a number of years, from payment appropriations, covering expenditure in connection with implementing commitments contracted during the current financial year or previous ones. The unity rule is not fully adhered to either, owing to the fact that European Development Fund appropriations and borrowing operations are not included in the budget.

2.   Structure

The budget nomenclature is intended to identify appropriations by their characteristics.

a.   Operating expenditure/administrative expenditure
The general budget is divided into eight sections, one for each Institution. While the other Institutions’ sections consist of administrative expenditure only, the Commission section (Section III) comprises both a Part A (administrative expenditure) and a Part B (operational expenditure), which accounts for about 95% of the general budget.

b.   Compulsory expenditure/non-compulsory expenditure
* 1.4.3

c.   Breakdown by sector (financial perspectives for 2000)
-      Agriculture: EUR 41 738 million: 44.5%;
-      Structural Funds: EUR 32 678 million: 34.8%;
-      internal policies: EUR 6 031 million: 6.4%;
-      external actions: EUR 4 627 million: 4.9%;
-      administration: EUR 4 638 million: 4.9%;
-      reserves: EUR 906 million: 1.0%;
-      pre-accession aid: EUR 3 174 million: 3.4%.

3.   Drawing up the financial perspective

An ‘interinstitutional agreement on budgetary discipline and improvement of the budgetary procedure’ was concluded between the Council, the Commission and Parliament (at Parliament’s instigation) in 1988. It established a five-year financial perspective (1988-1992) for each main category of expenditure. A further agreement concluded in 1993 contains forecasts for a seven-year period. These forecasts are in fact binding ceilings, and the Institutions undertake to treat them as annual ceilings which they must respect and not to reduce projected non-compulsory expenditure by making changes to compulsory expenditure. A flexibility margin (0.04% of overall Community GNP) is provided to deal with substantial changes in the economic situation.

A new financial perspective has been adopted for the period 2000-2006 as part of the Interinstitutional Agreement of 6 May 1999. The two sections of the Budgetary Authority may agree to revise the ceiling of the financial perspective within very precise limits, only in the event of unforeseen events or new needs.

4.   Establishing a budget for individual activities

As part of its administrative reform, the Commission has proposed introducing a new budget nomenclature by establishing individual activity budgets. The aim is essentially to improve management transparency by grouping together expenditure on a particular measure, making it easier to assess the cost and effectiveness of each Community policy. These changes would lead to the removal of the distinction between part A (administrative appropriations) and part B (operating appropriations) in section III – Commission.

ROLE OF THE EUROPEAN PARLIAMENT

1.   Revenue

Parliament has in several resolutions drawn attention to the inadequacy of revenue and called for Community activities to be funded from own resources. Taking the view that the third and fourth resources cannot, in their present form, be regarded as genuine own resources, it has proposed a number of ways of ensuring that the Community is financially independent, in particular in a resolution of 11 March 1999.

With a view to adjusting the current rules on own resources, the Berlin European Council on 24 and 25 March 1999 instructed the Commission to consider this issue in general, taking particular account of the effects of enlargement up to 1 January 2006. It was also decided not to change the rate of 1.27% of GNP before 2006. During this period, Parliament’s desire for changes with regard to the possible creation of a fifth resources have therefore not yet been taken into account.

2.    Spending

With regard to Parliament’s role in budgetary decision-making, * 1.4.3 Parliament has from the start opposed the distinction between compulsory and non-compulsory expenditure, regarding it as artificial and restricting the powers of Parliament.

Initiatives taken by Parliament to put an end to this distinction have included several appeals to the Court of Justice. However, the Institutional Agreement on budgetary discipline of 6 May 1999 and the agreement on legal bases of 13 October 1998 confirm the extension of Parliament’s budgetary powers by means of the flexibility instrument, preparatory activities and pilot projects.

18/10/2000