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The budget covers the spending of all the Union's institutions. It fixes income and expenditure for the year, lists all the activities that are to be funded and sets out the total amounts of money and staff available for each.

The annual spending plans are negotiated between the European Parliament and the Council of Ministers on the basis of proposals by the Commission.


Revenue and expenditure

The European Union has its "own resources" to finance its expenditure. Legally, these resources belong to the Union. Member States collect them on behalf of the EU and transfer them to the EU budget. Own resources are of three kinds:

  • Traditional own resources (TOR) — these mainly consist of customs duties, agricultural duties and sugar levies. These own resources are levied on economic operators and collected by Member States on behalf of the EU. However, Member States keep 25 % as compensation for their collection costs. TOR account for around 15 % of total EU revenue.
  • The resource based on value added tax (VAT) is a uniform percentage rate that is applied to each Member State's harmonised VAT revenue. The same percentage is levied on the harmonised base of each Member State. The VAT-based resource accounts for around 15 % of total EU revenue.
  • The resource based on gross national income (GNI) is a uniform percentage rate (0.73 %) applied to the GNI of each Member State. Although it is a balancing item, it has become the largest source of revenue. The GNI-based resource accounts for around 69 % of total EU revenue.

The budget also receives other revenues, such as taxes paid by EU staff on their salaries, contributions from non-EU countries to certain EU programmes, and fines on companies that breach competition or other laws.

The amount of money which can be made available to the Union is limited by agreement of the Member States and parliaments. This ceiling is currently set at 1.24% of the Union's gross national income for payments made from the EU budget. As a comparison, about 45% of the Union's gross national income goes to national, regional and local public expenditure in the Member States.

EU spending is further limited by a multi-annual agreement between Members of the European Parliament, the Council of Ministers, and the European Commission. This agreement contains a "multi-annual financial framework". The recent ones cover spending plans for the seven-year periods from 2000 to 2006 and 2007 to 2013.


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Date: 28.12.2007