1. EU-integration knowledges Prepared by Dr. Endre Domonkos (PhD)
Academic Year 2012/2013, Autumn Semester

2. I. Features of the EU budget I.
The budget of the European Union is unique, different both from that of international organisations and nation states.
The EU’s budget has important regulatory and resource distribution functions.
The common budget is calculated in Euro.
The draft budget is prepared by the Commission, and is approved by the Council and the Parliament.

3. I. Features of the EU budget II.
The European Commission’s so-called MacDougall Report of 1977, which reinforced the regulatory, stabilising and redistributional functions of the common budget, laid down its fundamental principles:
- The principle of externality:
- The principle of indivisibility:
- The principle of cohesion:
- The principle of subsidiarity:

4. II. The revenue of the EU budget I.
In 1970, the so-called ‘own resources’ were introduced to finance the common budget.
Due to the insufficient level of own resources, the so-called fourth resource.
The revenues of the common budget can be divided on the following:
1). Customs duties, agricultural duties (levies);
2). VAT-based resources;
3). GNI-based resource (formerly GNP resource).
4.) Other revenues.

5. II. The revenue of the EU budget II.
1). Custom duties, agricultural duties (levies):
All custom duties levied (according to common customs tariffs) on imports from third countries are paid into the common budget.
Customs duties and levies on agricultural produce accounted for 1,5%, while customs duties on other products yielded 10,1% of the revenues of the 2005 budget.

6. II. The revenue of the EU budget III.
2). VAT-based resources:
3). GNI-based resource (formerly GNP resource):
This source of income was introduced by the 1988 budgetary reform in order to supplement own resources.
It is set on the basis of Member States’ GNP (gross national product).
4.) Other resources (unspent budget items from the previous year, tax contributions by EU officials + bank interests).

7. III. The key issues of budgetary debates in the eighties and nineties I.
Since the mid-eighties, the debate on the common budget between the Member States has focused on three important and recurring issues.
The debate is fundamentally between the main beneficiaries of the EU’s agricultural policy and the countries producing less- subsidisied products.
The extent of structural and cohesion expenditure has been another key point in the budgetary debate.

8. III. The key issues of budgetary debates in the eighties and nineties II.
A persistent problem was created by certain constantly apparent, often seemingly unjustified, differences between the contributor/beneficiary status of Member States.
EU members benefit from agricultural and structural policies, the two biggest expenditure headings in the EU-budget, to various extents, according to the redistributional logic of these policies.
These differences in the balance of payments into and transfers from the common budget, the so-called difference of net contributions, is a major source of tension.

9. IV. The system of multi-annual financial perspective I.
It became standard practice to adopt comprehensive financial perspectives (the last two times for a 7-year period) on the basis of estimated own resources.
These financial perspectives include ceilings for the overall budget and its key headings, which then serve as a framework for the annual budgets of subsequent years.
These multi-annual budgetary packages, so called financial perspectives or multiannual financial frameworks, are adopted at summit level meetings of Heads of State or Government.

10. IV. The system of multi-annual financial perspective II.
Before the introduction of budgetary packages, in the ’80s, the Council and Parliament regularly failed to come an agreement on the annual budget in time, by the beginning of the financial year.
Since multi-annual financial perspectives have been used, the annual budget has always been adopted on time.
This is partly facilitated by the inter-institutional agreement between the Council and the Parliament.

11. V. The Delors I and Delors II package I.
During the Presidency of Jacques Delors, the European Commission put forward two major packages of reform proposals.
The Delors I and Delors II packages overhauled the common budget and made the use of multi-annual financial perspectives standard practice.
This Delors I package for the budgetary period , increased revenue by introducing the GNP-based resource, and allocated the extra funds primarily for structural policy.

12. V. The Delors I and Delors II package II.
The Delors II package, for the period , was adopted by the Edinburgh European Council in December 1992.
It allowed an increase in the EU’s overall expenditure from 1,2% to 1,27% of GNP by 1999, and the creation of a Cohesion Funds of ECU 15.1 billion for the period
Another change introduced by the Delors II package was aimed at easing the VAT contribution burden of the less prosperous Member States.

13. VI. The Delors I and Delors II package III.
At the same time, finding a solution to the applications for membership submitted by CEECs also became an increasingly urgent task as the need for eastward enlargement began to be generally accepted.
In the mid-nineties, it became clear that the comprehensive reform of the common budget and its main items – agricultural and structural policy – was inevitable.
This resulted in a programme package published by the European Commission on 16 July 1997, which became known as AGENDA 2000.

14. VII. The financial provisions of AGENDA 2000 I.
The Commission launched AGENDA 2000 on 16 July 1997 with a view to the financial implications of enlargement and the pressing need to reform the Common Agricultural Policy as well as structural and cohesion policy.
AGENDA 2000 was a complex financial package for a 7-year period, the Member States tried to defend their own resources until the last moment.
Finally, on 26 March 1999, at the Berlin European Council, the Head of State or Government finally adopted the new financial perspective for the period 2000 to 2006.

15. VII. The financial provisions of AGENDA 2000 II.
The content of the Berlin package:
Despite all of these achievements, the failure to carry out a comprehensive structural and financial reform of the other key area, the Common Agricultural Policy, and the low level of agricultural support foreseen for new Member States made the sustainability of the financial framework uncertain.
Another major factor of uncertainty was to foresee the total number of countries that would become Member States between and 2006.

16. VII. The financial provisions of AGENDA 2000 III.
AGENDA 2000 was thus originally based on the hypothesis of enlargement with 6 new Member States by 2006.
AGENDA 2000 introduced a number of changes concerning the structure of the budget.
On the revenue side, the four own resources were maintained, but the rate of contributions was adjusted.

17. VII. The financial provisions of AGENDA 2000 IV.
Despite the foreseeable high costs of enlargement, the financial framework laid down by AGENDA 2000 kept the overall ceiling on expenditure at 1.27% of GNP (or 1.24% of GNI) for the entire period
The ceiling on expenditure set by the Delors II package for was 1.27% of GNP, but actual spending amounted only 1.15%.
AGENDA 2000 did calculate with these available resources as the other main source of financing enlargement next to surplus revenues generated by economic growth.

18. VII. The financial provisions of AGENDA 2000 V.
In order to establish a clear distinction between different types of expenditure, the cost of enlargement was included in the financial perspectives in two separate new headings:
1) pre-accession aid to candidate countries;
2) spending reserved for possible new Member States.
The Council decided to disallow any reallocation of resources between the budget lines for old Member States, candidate countries and new Member States.
AGENDA 2000 was based on comprehensive compromises between Member States.

19. VII. The financial provisions of AGENDA 2000 VI.
It must be noted that the enlargement-related budget lines of AGENDA 2000 had to be modified in line with developments during the enlargement process.
Net contributors increasingly pushed for freezing their contribution to the EU budget.
In December 2003, six net contributors (Austria, France, Germany, the Netherlands, Sweden and the United Kingdom) called for the capping of the bloc’s future budget.

20. Literature
- Zoltán Horváth (2011): Handbook on the European Union, Hungarian National Assembly, Fourth Edition, Chapter 7., The budget of the European Union, pp