The EU's general budget is the instrument which sets out and authorises the total amount of revenue and expenditure that are deemed necessary for the European Union each year.
Size and source
The European Union has a budget of approximately 130 billion euro, around 1% of the gross national income (GNI) of its 27 Member States (which will be 28 as of 1 July 2013). This share is small compared to national budgets. However, for some Member States EU funds represent a significant proportion of their total public spending.
The EU`s budget is funded chiefly (99%) from the EU's own resources. The largest sources of revenue are contributions from Member States based on their gross national income (73%) and a percentage of the VAT collected by the Member States (11%). Customs and agricultural duties ("traditional own resources") also represent a significant share (14%) of revenue. The remaining 1% of budget revenue comes from other sources of income. As a rule, own resources are not allowed to exceed 1.23% of the EU's GNI.
The budget is divided into five spending areas, which are themselves sub-divided into a number of smaller sections. The major part of the budget is spent on sustainable growth (47%) and natural resources (40%). A significant portion is spent on activities beyond the EU's borders (6%) and administration (6%), as well as the two areas of citizenship and freedom, security and justice (somewhat under 1% each).
Over 80% of the budget – notably agricultural and cohesion spending – is implemented by the Commission in cooperation with the Member States. Depending on the scheme in question, the national authorities may be responsible for setting spending strategies, selecting beneficiaries and projects and making payments. A specific feature of EU expenditure is the high percentage of payments based on claims submitted by the beneficiaries themselves, be they farmers or project managers throughout the Union.
The EU's budget is drawn up and implemented in accordance with a number of principles. These are budgetary unity and accuracy, annuality, equilibrium, a single unit of account, universality, specification, sound financial management and transparency. When the Council and European Parliament approve the annual budget, total revenue must equal total expenditure. In practice, however, actual revenue and expenditure often differ from the estimates. When there is a surplus (spending is less than revenue), this is used to reduce Member State contributions for the following year.
Discharge denotes the final approval for the EU budget in a given year, following the audit and finalisation of the annual accounts. Discharge is granted by the European Parliament on a recommendation from the Council. It indicates approval of the Commission's implementation of the budget in the financial year concerned and allows the budget to be closed. The ECA has an important role in the discharge procedure, as the decision is largely based on its annual report, including its statement of assurance.