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EU draft budget for 2016: stable payment at about € 143 bln

Eugene Eteris, BC, Copenhagen, 28.05.2015.Print version
The Commission proposed a 2016 EU budget of €143.5 billion to support the recovery of the European economy and help improve lives in Europe and beyond. The money will be invested to boost innovation, create jobs, help convergence among the member states and among regions, deal more effectively with migration and further strengthen the role of the EU as a global player.

The draft EU budget for 2016 includes commitment appropriations of €153.5 billion and payment appropriations of €143.5 billion. While commitments go down, payments stay roughly stable in real terms. "Commitments" refers to the funding that can be agreed in contracts in a given year (with some of the money only being paid in subsequent years); "payments" to the money actually paid out in that year, also to honor past commitments.

 

The table below shows the biggest increases (well above inflation) come in political priority areas such as competitiveness for growth and jobs, security and citizenship (including migration) and global action (including humanitarian aid and crisis management and European neighbourhood policy).

 

The payments also include credits to phase out the backlog of outstanding claims from the past budgetary programming period, which reached €24.7 bln at the end of 2014, while at the same time launching the programs under the new programming period.


Table: Appropriations by heading

APPROPRIATIONS BY HEADING

DB 2016 (nominal change in % since 2015)

Commitments

Payments

1. Smart and inclusive growth:

69 440.1 (-10.9%)

66 578.2 (-0.4%)

Competitiveness for growth and jobs

18 618.4 (6.1%)

17 518.1 (11.4%)

Economic, social and territorial cohesion

50 821.7 (-15.9%)

49 060.1 (-4.0%)

2. Sustainable Growth: natural resources

63 104.4 (-1.2%)

55 865.9 (-0.2%)

Market related expenditure and direct aids

42 867.6 (-1.4%)

42 859.3 (-1.4%)

3. Security and Citizenship

2 670.0 (9.7%)

2 259.0 (17.1%)

4. Global Europe

8 881.7 (5.6%)

9 539.2 (28.5%)

5. Administration

8 908.7 (2.9%)

8 910.2 (2.9%)

Other special Instruments*

524.6 (-9.8%)

389.0 (-7.0%)

Total appropriations

153 529.5 (-5.2%)

143 541.5 (1.6%)

In % of EU-28 GNI

1.04%

0.98%

Note: Other special instruments include the Emergency Aid Reserve (EAR), the European Globalisation Adjustment Fund (EGF) and the European Union Solidarity Fund (EUSF). The corresponding appropriations are considered outside the MFF for the purpose of the calculation of the margins under the ceilings for appropriations.


Supporting the EU’s development

The draft EU budget for 2016 supports the key initiatives of the Juncker Commission, such as the Energy Union, the Digital Single Market and the European Agenda for Migration. For example, it foresees €1.67 billion for the Connecting Europe Facility and €833 million for the Asylum, Migration and Integration Fund (AMIF) and the Internal Security Fund (ISF), the two main sources of funding for the measures under the EU policy on migration and security.

 

The Commission proposed a 2016 EU budget (27 May 2015) of €143.5 billion in payment credits to support the recovery of the European economy and help improve lives in Europe and beyond. The money will be invested to boost innovation, create jobs, help convergence among Member States and among regions, deal more effectively with migration and further strengthen the role of the EU as a global player. The proposal also includes contributions to the European Fund for Strategic Investment (EFSI), which is at the heart of the Investment Plan for Europe. Today’s draft will be sent to the European Parliament and EU Member States who will jointly decide on the final budget.

 

European Commission Vice-President Kristalina Georgieva, in charge of budget and human resources, underlined that EU’s budget was aimed at using taxpayers' money wisely. Thus, the EU 2016 budget supports the economic recovery through investment for growth and jobs, as well as helping manage external challenges such as migration.

 

The budget is expected to respond to the most pressing needs in Europe, as well as aiming for the best possible results, she added

 


Boosting jobs, growth and investment climate

Main features of the draft 2016 EU budget include:

- Nearly half of it (€66.58 billion) used to stimulate growth, employment and competitiveness.

- Supporting the political priorities of the European Commission, for example the Energy Union and the Digital Single Market, via programs like the Connecting Europe Facility (€1.67 billion in 2016).

- €1.8 billion (30% more than 2015) to Erasmus+, the European program for education, training, youth and sport, which will help over 4 million people to work and study across the EU in 2014-2020.

- Increasing competitiveness through research and innovation with programs like Horizon 2020 (€10 billion in 2016, up 11.6% from 2015).

- €2 billion in commitments and €500 million in payments for the guarantee fund of the EFSI, to unlock €315 billion in investment for Europe. The EFSI-Regulation, including the budgetary aspects of the new investment structure, is subject to ongoing negotiations between the European Parliament and the Member States.

- A total of €42.86 billion for farmers.


Tackling new challenges in Europe and beyond

More money will be available to tackle today's migration challenges. The budget supports the European Agenda for Migration presented earlier this month, with additional funding for the Triton and Poseidon Operations, strengthened emergency assistance to frontline Member States, the funding for an EU-wide resettlement scheme, and reinforcing agencies such as FRONTEX and the European Asylum Support Office (EASO). There is €833 million for 2016 for the Asylum, Migration and Integration Fund (AMIF) and the Internal Security Fund (ISF), the two main sources of funding for the measures under the EU policy on migration and security.

 

The EU budget also responds to new developments in Europe's neighbourhood and beyond. There is €9.5 billion (+28.5%) to support the EU's capacity to respond to external crises, such as those in Ukraine and Syria, and to provide humanitarian help outside the EU. The European Neighbourhood Instrument (ENI) and the Development Cooperation Instrument (DCI) will be reinforced to €2.1 billion (+34%) and €2.7 billion (+27%), respectively.


EU budget from within

The draft EU budget includes two amounts for each program to be financed – commitments and payments. "Commitments" refers to the funding that can be agreed in contracts in a given year; "payments" to the money actually paid out. In the draft 2016 budget, commitments represent €153.5 billion (down 5.3% from 2015) and payments €143.5 billion (up 1.6% from 2015). This means payments are roughly stable in real terms relative to 2015. The payments include the credits needed to phase out the backlog of outstanding claims from the past budgetary programming period, which reached €24.7 billion at the end of 2014.

 

The EU budget amounts to roughly 1% of EU GDP, but thanks to its multiplication’s effect and its focus on results, it has a big impact. Over 2007–13 for instance, the average increase in GDP as a result of Cohesion Policy is estimated at 2.1% a year in Latvia, 1.8% a year in Lithuania and 1.7% a year in Poland. Source: http://europa.eu/rapid/press-release_IP-15-5046_en.htm

 

Commitments represent the combined value of contracts that the EU is allowed to sign in any given year. Commitments must then be honored with payments, either in the same year or (in the case of multi-year projects) in subsequent years.

 

Payments are the actual money paid in a given year from the EU budget, to cover commitments made that year or in previous years.

 

For instance, when the EU agrees to co-fund the building of a bridge, the total amount which the EU agrees to cover is a commitment. The bills for the work done are the payments. The EU has to use the money at its disposal to make the payments and cover its original commitments.


“Payment plan” discussed along with the draft budget 2016

Over the years, due to the demand for payments from the EU budget exceeding the money available, some commitments could not be honored on time and the beneficiaries had to wait until the following year's budget to receive their payments. However, by carrying over payments from one year to the next, each budget was short of money for payments already at the beginning of the year – leading to a steadily increasing amount of unpaid bills (the 'payment backlog'). At the end of 2014 this backlog reached an unprecedented level of €24.7 billion for the 2007-2013 Cohesion programs.

 

As part of the negotiations for EU budget 2015, the Commission, the European Parliament and the Council agreed that the Commission would propose how to reduce the backlog by the end of 2016. This is called the 'payment plan'.

 

The Commission made an analysis and presented it to the European Parliament and to the Council at the end of March. Earlier this month, the three institutions agreed that it is feasible to bring the payment backlog down to a reasonable level of €2 billion at the end of 2016. The Commission's draft budget includes the payments necessary to reach this goal.


“Managing” the EU’s money

Some 94% of the EU budget is spent on projects in the EU member states: it goes to citizens, regions, cities, farmers, businesses, universities, NGOs and more. The EU budget finances the EU policies, to have a positive impact on the lives of all EU citizens.

 

It funds for example, such areas as employment, regional development, research and education, environment, humanitarian aid and many others.

 

About 80% of the EU budget is managed jointly by the EU institutions and the member states’ authorities; it means that the states are responsible for choosing the beneficiaries and making sure they have done the job they have pledged to do before paying them. Only 6% of the budget goes to the EU’s administration. However, the “administrative budget” supports a number of EU policies, e.g. from breaking up cartels to reducing mobile roaming charges.


The EU’s “own financial resources”

At the beginning of each new seven-year planning period (also known as the "Multiannual Financial Framework", MFF), all EU states must decide by consensus on the types and maximum amounts of "own resources" that the EU may collect during a year as well as on the method for calculating them.

 

There are three types of own resources:

 

- Traditional own resources: consist mainly of customs duties on imports from outside the EU and sugar levies. In the 2007–13 MFF, 75% of the amounts which the EU states collected from customs duties and sugar levies went to the EU budget. Member States kept the rest to cover their administration costs.

- Own resources based on value added tax (VAT): 0.3% of the member states' harmonised VAT base also goes to the EU budget.

- Own resources based on gross national income (GNI): each EU state transfers a certain percentage of its wealth to the EU budget (about 1%). These GNI contributions account for over 70% of total EU budget revenue.


Other sources of EU budget revenue include taxes and other deductions from EU staff salaries, bank interest, contributions from non-EU countries to certain programs, interest on late payments and fines.


The size of the EU budget

The EU budget accounts for about 1% of the EU's combined Gross Domestic Product (GDP) or approximately 2% of the public spending of the EU-28 states.

 

Though relatively small in size, it has a big impact: for example, for the period 2007-2013, EU Cohesion funds boosted average GDP by 2.1% a year in Latvia, 1.8% in Lithuania and 1.7% in Poland. EU budget also helps invest in infrastructure, skills and other areas through regional funding; creates jobs through programs like the Youth Employment Initiative; supports research and innovation thanks to Horizon 2020; or makes sure people get high-quality agricultural products on their table thanks to the Common Agricultural Policy.

 

The commitments and the payments for a given year need to be below the ceilings for that year set out in the Multiannual Financial Framework, the seven-year budget cycle of the EU. The current framework was negotiated by the Commission, the European Parliament and the Member States in 2013, ahead of the start of current 2014-2020 period.

 

Each year, the amounts for each of the main categories of expenditure ("headings") are decided based on the expected needs for the following year (while remaining below the ceilings).


Perspectives

The European Commission has submitted the draft EU budget for 2016 to the European Parliament and the Council, the two arms of the "budgetary authority”, for taking a decision.


The Council usually adopts its position during the summer months and the Parliament expresses its opinion at the beginning of the autumn.

 

In case of disagreement between the Parliament and the Council, a specific Conciliation Committee is convened, usually in November. It has 21 days to agree on a common budget, which both institutions should afterwards approve (in 2015, this period runs between 29 October and 18 November). If the Parliament and the Council cannot find a compromise and the conciliation procedure fails, the Commission must present a new draft budget.

 

If the three institutions have not agreed on a budget by the beginning of the calendar year in question, negotiations continue. In the meantime, the system of 'provisional twelfths' applies. This would mean that the budget appropriations for each chapter of the budget would be funded monthly, by one twelfth of the previous budget, or by the relevant amount in the draft, whichever is less.

 

Although this system makes it possible for the EU to continue functioning, it deprives it from making long-term commitments and funding programs whose implementation goes beyond a single month. So far, this system has applied in 1980, 1985, 1986 and 1988 for up to 6 months.


More information on the EU budget:


= Press release Draft EU budget 2016;

= EU budget at a glance factsheet;

= EU budget in my country online;

= Myths and Facts about the EU budget, and 

= Draft EU Budget 2016

Main reference: http://europa.eu/rapid/press-release_MEMO-15-5045_en.htm?locale=en






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