Q&A on future EU budget and own resources

The EU's Multi-annual Financial Framework (MFF) sets out spending ceilings for each policy category or "heading" (there are currently five). The MFF, also known as the "Financial Perspectives"), helps to ensure that EU spending takes place in an orderly fashion, and remains within the limits of the EU's "own resources" income. It also limits overall spending to a percentage of EU Gross National Income (GNI). In 2009, this limit was 1.23% of GNI.

Currently overall annual expenditure cannot exceed 1.23% of EU GNI. However, this limit has never yet been reached. In 2011, the EU's annual budget amounts to 1.09% of GNI.

The EU's annual budgets are currently divided into five spending categories, called headings:

1. Sustainable Growth 1A: Competitiveness for Growth and Employment 1B: Cohesion for Growth and Employment (This heading includes regional policy)

2. Preservation and Management of Natural Resources (This heading includes agriculture and environment)

3. Citizenship, Freedom, Security and Justice 3A: Freedom, Security and Justice 3B: Citizenship

4. EU as a global player

5. Administration

When budgets are being discussed within the EU institutions, one often hears, for example, "heading 4" or "H4", rather than "foreign affairs budget". Each heading is divided into "budget lines", each of which can be drawn upon for a specific purpose.

The procedure for deciding the Multi-annual Financial Framework is laid down in the Treaty on the Functioning of the EU. The treaty requires the European Parliament, the Council and the Commission to "take any measure necessary to facilitate its adoption" (Article 312:5), and stipulates that the presidents of the three institutions shall hold "regular meetings", at the initiative of the Commission (Article 324). These meetings started early in 2011 and will continue until the MFF is finally approved. Formally, the MFF is approved by a unanimous decision of the Council of Ministers, but not before Parliament has given it its blessing ("consent").

The EU Treaty rule that "the budget should be financed wholly from own resources" (Article 311) has been "temporarily" disregarded since the 1980s, leading to a situation where 75% comes from sources other than own resources.

The lion's share, 75%, comes from national contributions based on Gross National Income (GNI). Then there is the "VAT-based contribution" which amounts to 11% of the total income. "Traditional" own resources (custom duties, agricultural duties and sugar levies), add up to 13%. The remaining 1% comes from fines imposed on companies that are in breach of competition law and taxes on EU staff salaries.

Own resources decisions, which may establish new categories of own resources or abolish existing ones, must also be unanimously approved by the Council, but the procedure here differs in that Parliament is only consulted. Furthermore, these decisions must also be approved in accordance with the respective constitutional requirements (Article 311) in the member states, in effect requiring "double unanimity". Arguments over "national rebates" are settled by own resources decisions.

The Multi-annual Financial Framework (or "Financial Perspectives"), sets annual spending ceilings for the various policy headings within a multi-annual spending period (e.g. 2007-2013). Annual budgets must always be established within the MFF limits.

Parliament's Policy Challenges Committee Committee, which examines "the policy challenges and budgetary resources for a sustainable European Union after 2013", has six key tasks:

• to define Parliament's priorities for the EU's next long-term budget framework, in both political and budgetary terms,

• to estimate how much money the EU will need to achieve its objectives,

• to define the duration of the next long-term budget framework (this has traditionally been seven years but MEPs want to adjust it to match the mandates of the Parliament and the Commission),

• to propose a structure for future long-term budget frameworks,

• to draw up guidelines on  how  resources should be distributed within and between different parts ("headings") of the EU budget, and

• to specify the link between a reform of the EU's financing system (own resources) and a review of expenditure, so as to provide the Budgets Committee with a basis for the forthcoming MFF negotiations.

The committee's sustainable resources ("SURE") report is neither legally binding, nor is it Parliament's final response to proposals from the Commission, the Council of Ministers or the European Council, since these proposals will come only after SURE report is to be approved by Parliament in a plenary vote.

"Europe 2020" is the EU's growth strategy for 2010 - 2020. It aims to make the EU a smart, sustainable and inclusive economy.

In March 2010, the European Council adopted the five EU 2020 headline targets proposed by the European Commission: increasing the employment rate for women and men to 75%, raising combined public and private investment levels in research and development to 3% of GDP, reducing greenhouse gas emissions by 20% compared to 1990 levels, improving education levels and promoting social inclusion. The Commission has proposed a series of "flagship initiatives" to achieve these targets.

To MEPs, it is obvious that these ambitious targets cannot be achieved solely through coordination and legislation, but also need support from the EU budget. In their resolution of 24 March 2011 (general guidelines for the preparation of the 2012 budget), MEPs acknowledged that "delivering on the Europe 2020 strategy's seven flagship initiatives will require a huge amount of future-oriented investment", adding that "the Europe 2020 strategy can be credible only if adequately funded" and stressing that any attempt to limit or reduce budget appropriations linked to the EU 2020 strategy "would be counter-productive, most likely resulting in the failure of Europe 2020, as was the case for the Lisbon Strategy".

When the next multi-annual financial framework enters into force, the EU should have already begun implementing the 2020 strategy. The SURE report is therefore likely to demand that "the Europe 2020 strategy should be the policy reference for the next MFF".

• 25-26 May - SURE Committee votes on report on the post-2013 long-term budget framework

• 8 - 9 June - Plenary debate and vote on report on the post-2013 long-term budget framework

• 29 June - Commission presents proposal for the post-2013 long-term budget framework and on own resources

As an indication of when the MFF talks could end, for 2007-2013, EU Member States aimed to reach a decision in June 2005 but, failing this, agreed among themselves only in December 2005. The final decision was agreed by Parliament and the Council on 4 April 2006 and then approved by the Council on 15 May and by Parliament in plenary session on 17 May 2006.