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Lucas Pires Francisco António, European Parliament, Institutionnal Committee - 5 gennaio 1995
EP 1996: a budgetary framework for the Union


Prepared by: Mr Francisco António LUCAS PIRES (EPP, Po)

SUMMARY: M. LUCAS PIRES considers that the goal to be pursued in 1996 is to ensure a more comprehensible and consistent budget for a wider and deeper Union; in order to achieve these goals he puts forward the following proposals: a revision of the system of revenues; the explicit recognition of the principle of fiscal fairness in thebudget of the Union as it moves towards a single currency; the broadening of the application of the co-decision in the budget procedure including the right of assent over the level of revenues; the obbligation to respect the principle of budgetary unity; the elimination of the difference between compulsory and not compulsory expenses; a bigger autonomy for the budget of the Union; a stronger budgetary control through a reinforcemernt of the role of the court of auditors. (EP, Brussels, 5 january 1995)


The 1996 IGC provides a critical opportunity to reconsider the financial provisions in the Treaty on European Union, notably Articles 199-209 of the EC Treaty and Articles J11 and K8 of Titles V (Common Foreign and Security Policy) and VI (Cooperation in the Fields of Justice and Home Affairs). The prospect of an economic and monetary union, the development of the second and third pillars of the Treaty, the pressure for greater democratisation of the Union's institutions and procedures, the further enlargement of the Union and the new relationship between competitiveness and employment, together create a new context which has an obvious impact on the functioning of the budget. The budget of the past is incompatible with a future marked by a single currency inside the Union and a reinforced foreign and security policy outside.

At the same time, the provisions of the budget have been overtaken by events: the formulae of the past no longer correspond with changed circumstances. The dismantling of trade barriers under GATT agreements and the reform of the CAP have led to a significant drop in the level of customs duties and agricultural levies available to the Community as own resources: they have declined from nearly 50% of the total of own resources in 1980 to just over 20% today. The increase in spending on structural policies and on external policy (together they have nearly doubled in the last five years) has led to a major rise in the volume of non-compulsory expenditure and a relative decline in agricultural spending. These changes make it essential to look at the budgetary procedure afresh, with a view to revising the relative powers of the Member States and of the Union as well as those of the twin arms of the budgetary authority. Unless they are revised there is a risk of provoking still greater discontent with the existing

distribution of powers leading to institutional paralysis.

This document will seek to offer a third way between a complete revolution in budgetary methods and mere tinkering with the existing structure. A major leap forward is undoubtedly necessary: the situation is no longer that which faced the Community during the debates on the Single European Act and the Maastricht Treaty. But such a move needs to be grounded in concrete proposals of a more pragmatic character. Hence this document will put forward a general framework of principles and methods with a view to the revision of the relevant articles of the Treaty. In so doing it will try to adopt an even-handed approach, designed to enable the contributions of the budgetary committees to become essential pillars of the debate in this committee.

To this end the document lays out a series of objectives which should inform the Parliament's approach to the 1996 IGC. Above all, they are designed to make the budget more comprehensible to the citizens of the Union in terms of understanding what revenue is allocated to the Union, the principles of the budget within an economic and monetary union, notably that of fiscal fairness and its link to the objectives of the Union. In addition, the Parliament should seek to broaden the scope of co-decision in the budgetary procedure, to underline the principle of budgetary unity, to ensure the autonomy of the budget under the principle of subsidiarity, to reinforce budgetary discipline and to make the procedures more transparent and less complex.

A more comprehensible budget for the citizens of a wider and deeper Union

The establishment in the Treaty on European Union of European citizenship underlines the importance of the principle that the citizens of the Union should be able to see more clearly what happens to the appropriations voted in the budget and to understand what the budget is designed to achieve. To ensure greater visibility of the budget, it is useful to indicate that particular projects have been financed by the Union, but it is not enough. The essential means of achieving such visibility is by modifying the revenue system so that everyone can identify more precisely what monies go to the Union.

A solution is often sought by calls for a fifth source of revenue beyond those which exist at present, namely customs duties, agricultural levies, a percentage of the VAT base and a GNP component. In addition, it is useful to recall the proposal that was adopted by the Parliament on 21st April 1994. Paragraph 10 of the resolution, based on the report of Mr LANGES, argued that:

- "a Union proportion of VAT, directly imposed on the basis of tax declarations and denoted as such on invoices, is the most appropriate means of meeting the demands of being simple and transparent and constituting an effective link between the taxpayer and the destination of the tax (European Union)".

As the resolution went on to say, such an open indication of the Community's share of VAT "would help to correct mistaken perceptions among the public as to the cost of the Union and thus enhance identification with the Union". Furthermore, changes in the volume of VAT must be agreed through parliamentary procedures and not simply as a result of intergovernmental bargaining: this requires greater co-decision in the budgetary procedure, to which we shall return below.

The importance of the visibility of the budget will become even greater as the Union expands its competences. This will be particularly true in an economic and monetary union where the scope for national budgetary decisions is substantially reduced and the salience of the Union's budgetary policy correspondingly increased. The move towards EMU and, in particular, the establishment of a single currency, will force reconsideration of the role of the budget.

At its simplest, it will entail revision of Articles 207 and 208 with their references to payments and transfers in the separate currencies of the Member States. However, there is the broader issue of establishing that the budget of the Union reflects the principle of fiscal fairness. This principle can only be respected if some form of stabilising mechanism is established, based on the logic of fiscal federalism. One possibility is a system of revenue equalisation similar to that established in Germany between the Federal Government and the Länder. The precise shape of such arrangements will need to be discussed but the basic issue raised by the establishment of a single currency, namely the fact that national governments are being deprived of a specific tool of economic management, cannot be separated from the debate on the shape of the budget.

At the same time, the budget needs to be re-examined in the context of the move to a broader political union. As the Union seeks to develop its role, notably in common foreign and security policy and in home and judicial affairs, it is evident that the budget must reflect these developments. Indeed, this was acknowledged in Article F3 of the Treaty on European Union which underlines that "the Union shall provide itself with the means necessary to obtain its objectives and carry through its policies". It would be incomprehensible to the citizens of Europe if this provision was not respected in the years ahead.

The extension of budgetary co-decision

The need to ensure that the Parliament's role in the budgetary procedure is deepened is manifest in the face of a Council consistently tempted to move in the opposite direction. Its determination to include "amounts deemed necessary" (known as MENs or "montants estimés nécessaires") in legislation has been a sign of its wish to undermine the Parliament's budgetary powers. The Parliament has been able to combat this move because of its new powers under the legislative co-decision procedure. These have enabled it to press for a negotiated settlement through the conciliation procedure. It is essential to introduce procedures of equivalent strength within the budgetary procedure.

At present, conciliation ("concertation", not "conciliation") does take place before the first and second readings of the Council. In addition, as a result of the interinstitutional agreement of 29th October 1993, an ad hoc conciliation procedure has been set up to deal with the definition of compulsory expenditure. However, although the purpose of this latter procedure (unlike the two conciliations which precede the Council's first and second readings) is "to secure an agreement between the two arms of the budgetary authority", it does not yet provide an effective means for determining what expenditure should be considered compulsory and thereby offer a means of reaching joint agreement on the compulsory part of the budget. It must be strengthened to create a greater degree of equivalence between budgetary and legislative co-decision.

Furthermore, the European Parliament has consistently argued that it should have a say over all the expenditure and revenue of the Union. At present there are a number of significant areas where its rights do not extend beyond consultation. The most important of these is revenue. The Parliament is often accused of enjoying the "luxury of revenue irresponsibility" in that it is not obliged to make choices as to where increases in expenditure should come from. It votes such increases in the knowledge that the money will be made available in accordance with the own resource decisions.

There are two complementary ways of addressing this issue:

- the Parliament should be given the right of assent over own resource decisions, thus putting it on the same footing as national parliaments.

- within the overall level of own resources made available to the Union, a more developed mechanism should be devised for ensuring that "any proposal for new expenditure be accompanied by a proposal for the corresponding revenue", as proposed in the draft constitution (Article 40, paragraph 3) adopted by the Institutional Committee at the beginning of this year. Such a proposal would involve a reinforcement of the use of "fiches financičres" in the activity of the Parliament.

Greater budgetary unity

At present, there are substantial exceptions to the fundamental principle of budgetary unity which should lead to all the financial activities of the Union being incorporated in a single budget. It is impossible to justify the continuing exclusion from the budget of expenditure under the European Development Fund and the borrowing and lending activities of the Union. In addition, there is little coherence in provisions such as those governing the second and third pillars of the Treaty on European Union, notably Articles J11 and K8, which establish an artificial distinction between administrative and operational expenditure and offer the Member States the possibility of covering the latter by national contributions. This distinction should be eliminated.

In the context of further enlargements, exceptions in budgetary coverage could become an excuse for budgetary opt-outs by certain Member States. Hence the importance of ensuring that not only do all Member States participate fully in the financing of the budget, but that financing respects the principle of budgetary unity. Article 199 should thus be revised to include the phrase "All the annual revenue and expenditure of the Union shall be entered in the budget."

Autonomy and budgetary subsidiarity

How is the principle of subsidiarity, enshrined in Article 3b, to be applied in the budgetary arena? The principle needs to be examined in the context of Article F(3) which specifies that "the Union shall provide itself with the means necessary to attain its objectives and carry through its policies". This paragraph makes it clear that when Member States decide to undertake new tasks at the level of the Union, then they are also committing themselves to finding the requisite appropriations. If an action cannot be sufficiently achieved by the Member States and can rather be better achieved by the Community, then the principle of subsidiarity dictates that its financing should be guaranteed at the level of the Union.

In reality, it has been a constant theme in the life of the Community that political decisions are taken to pursue certain objectives, but that there is a reluctance, if not outright refusal, to make the necessary financial provision. This has been well illustrated in recent months with the debate on trans-European networks.

Member States need to look at this problem afresh and to recognize that once they take a decision on the volume of revenue to be made available to the Union, the Union should enjoy the right to determine how those resources are used in the budgetary procedure. If the Union takes the view that that revenue is inadequate to achieve the political objectives that have been established, then it is up to the institutions concerned to invite the Member States to consider increasing the total volume of revenue available.

Such an obligation could be incorporated into the Treaty by expanding the text of the existing Article 201(A) which specifies that no proposals for legislation should be presented by the Commission unless they can be financed within the limits of the Community's own resources.

Reinforced budgetary discipline

The revision of the Treaties should be inspired by the principle contained in Article 40(4) of the draft constitution adopted by the Institutional Committee whereby "the Union shall be subject to the same budgetary discipline as that imposed on the Member States by virtue of the law of the Union".

The issue of control is linked to the nature of the budgetary procedure. That procedure leads to less attention being paid to control than there would otherwise be. On the one hand, the Council sees its role as cutting non-compulsory spending, outside the "privileged" areas (in particular, the structural funds and external policy), as severely as it can; on the other, the Parliament concentrates on correcting the inadequacies of the Council's approach, essentially by increasing the expenditure in the draft budget. If this somewhat stilted procedure is itself revised, control can start to assume a more normal position in the decision-making process of the Union.

In addition, there are two specific mechanisms for budgetary control which should be reinforced. The first is the Court of Auditors. The principle must be established that its control covers all the spending of the Union and this includes spending which at present is or can be outside the Community budget. This is another area of weakness in the budgetary provisions relating to pillars two and three of the Maastricht Treaty.

The second mechanism are the penalties to be incurred in the event of controls being shown to be inadequate. An explicit link can be suggested between Article 171 and Article 209 (a). The latter specifies that the "Member States shall take the same measures to counter fraud affecting the financial interests of the Community as they take to counter fraud affecting their own financial interests". The former specifies that if a Member State fails to fulfil its obligations under the Treaty, that the Court of Justice may impose a lump sum or penalty payment on the Member State concerned, if it fails to take remedial action. In this context the Parliament should press for agreement on a convention as suggested in the conclusions of the Essen European Council.

More transparent procedures

The most obvious example of lack of transparency in the budgetary procedure is the distinction between compulsory and non-compulsory expenditure. It is a feudal remnant of a former period in the Community's history, an artificial construct which it is impossible to explain and still less justify. The Council finds it almost impossible to go beyond the claim that what is compulsory this year is what was compulsory last year. However, "compulsory expenditure" has a psychological importance in that it offers an important reassurance to the agricultural interest inside the Union. The task of the Parliament is to eliminate the artificiality of the distinction, whilst reassuring the agricultural interest of its intentions. This will not be easy.

There are two approaches to this problem. First, the limited role of the European Parliament in legislative decisions taken in agriculture under Article 43 needs to be rectified. This absence is all the more unjustifiable as that article provides for qualified majority voting. Such voting provisions establish a strong case for the Parliament to be given codecisional rights, rather than the consultation that it enjoys at the moment.

Second, the status of agricultural expenditure in the budgetary procedure has to be changed. The Parliament has never denied that some agricultural guarantee expenditure does arise directly from legislative decisions and therefore has to be entered into the budget. Its argument has been that how much expenditure falls into this category needs to be discussed and clarified in negotiations between Council and Parliament, taking account of the limit imposed by the agricultural guideline.

The ad hoc conciliation procedure referred to earlier in this document offers a first way of moving towards a joint approach of the two institutions, but it remains an underdeveloped procedure which needs to be taken further. Once there is a means of reaching agreement, then there would be no strong grounds for eliminating the distinction in the Treaty.

Such a mechanism for resolving the argument over compulsory expenditure should be linked to new thinking about non-compulsory expenditure. The expansion of the latter has diminished in importance as an independent goal since the introduction of the financial perspective, which lays down a variety of expenditure ceilings that the institutions agree to respect in the budgetary procedure. What needs to be clarified is the relationship between Article 203 and the Interinstitutional Agreement.

There is a strong argument that the principle of multiannual financing should be given greater importance by being incorporated into the Treaties. Such a provision would still leave scope for negotiation about the nature of the financial perspective and the Interinstitutional Agreement but it would make much clearer the idea that the annual budgetary procedure takes place within a broader overall framework.

The consequences of such a change are potentially very substantial. There would be an argument for saying that it would no longer be necessary to have the provisions in Article 203 relating to the maximum rate of increase. And the procedure itself could be substantially simplified. The Council's first reading could be eliminated and the Parliament requested to give its first reading before the Council intervenes.


This document has identified a number of ways in which the main objectives outlined at the outset can be achieved in the course of the 1996 IGC. The changes which the Parliament should seek can be resumed as follows:

a. A revision of the system of revenue to make it more visible so that EU citizens can identify what they are paying to the Union;

b. The explicit recognition of the principle of fiscal fairness in the budget as the Union moves towards a single currency;

c. The broadening of the application of co-decision in the budgetary procedure, including the right of assent over the level of revenue;

d. The obligation to respect the principle of budgetary unity, so as to ensure that all expenditure of the Union is included in the budget;

e. A guarantee of the budgetary autonomy of the Union, enabling it to decide upon and make full use of the own resources made available to it;

f. A strengthening of budgetary control through a reinforcement of the role of the Court of Auditors and of the mechanism available for the imposition of fines;

g. An increase in transparency and a reduction in complexity through a review of the distinction between compulsory and non-compulsory expenditure as well as the incorporation of the principle of multiannual planning into the Treaties with the possible elimination of the provisions relating to the maximum rate.

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