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How the EU is financed


EU Finances

The EU spends around €140 billion per year across all Member States, most of it to support sustainable growth and the preservation and management of natural resources.  Member States contribute to the EU’s budget:  Ireland’s contribution in 2011 was €1.35bn.  Ireland is a net recipient of EU funding:  it receives more than it contributes.

How the EU is financed

The EU’s annual budget is equivalent to around 1% of the Union’s national wealth and is spent with the aim of improving everyday lives.  This could mean better infrastructure, opportunities for students to study abroad, easier access to larger markets for small businesses, or for jobseekers to access training.  Directly or indirectly all EU citizens benefit from EU spending, for example through better roads, safer food, or guaranteeing their fundamental rights.  The EU budget only finances projects in policy areas where all EU countries have agreed that, if they join forces at Union level, they can achieve better results at lower cost than if they acted at national level.

How is the EU budget funded?

The EU budget is funded from three main sources:

  • Member State contributions, based on a percentage of their Gross National Income

  • Import duties on goods entering from outside the EU

  • A percentage of each Member State’s national VAT rate

How is the EU budget spent?

Though the budget is agreed annually, the EU also has a more strategic long-term approach to budget planning known as the “financial framework”.  The budget for 2011 totalled €141.9 billion. The current seven year framework, which expires in 2013, includes six main areas of budget expenditure:

How EU is Financed-budget expenditure

Source; European Commission
  1. Sustainable growth.  These are activities aimed at promoting growth and employment through increased competitiveness and cohesion.  They include research and innovation, education and training, social policy, economic integration, inter-regional cooperation, and convergence of the least developed EU countries and regions.

  2. Preservation and management of natural resources. This includes spending on the Common Agricultural and Fisheries Policies and on environmental measures.

  3. Citizenship, freedom, security and justice.  This includes spending on justice and home affairs, border protection, immigration and asylum policy, public health, consumer protection, youth, and information and dialogue with citizens

  4. The EU as a global player. This is spending on External Action (“foreign policy”) by the EU.

  5. Administration.  The administrative expenditure of all the European institutions, pensions and the “European Schools”.

  6. Compensations.  A temporary heading which includes compensatory payments relating to the latest expansion of the EU.

The Multiannual Financial Framework 2014-2020

Once the current long-term spending plan expires at the end of 2013, it will be replaced by a new Multiannual Financial Framework (MFF) from 2014-2020.  The European Commission’s proposals for the MFF 2014-2020 are currently being reviewed by the Council of the European Union and the European Parliament.

Who drafts and manages the EU budget?

How EU is Financed-budget-who is involved

The EU budget: who is involved at each stage

Drafting

The EU budget is agreed and managed transparently and democratically.  The Commission drafts the annual budget.  The draft is then submitted for approval to the Council and the Parliament.  Both Institutions can amend the draft at this stage.  If the Council and the Parliament cannot agree, they can set up a Conciliation Committee which has 21 days to work with both to find a solution.  However, the Treaty of Lisbon clearly stipulates that the Parliament is ultimately responsible for the budget’s adoption.

Managing

Once the budget is approved by the Council and the Parliament, the Commission is responsible for its implementation.  However, over 75% of the budget is distributed directly to Member States, who are responsible for allocating funds.  Member States then report back to the Commission on how the money was spent. 

Accounting

Expenditure by Member States is audited by the Commission, which can reclaim funding if irregularities are found. The Commission is accountable to the Court of Auditors for how EU money has been spent.  The Court of Auditors ultimately “signs-off” on the Commission’s accounts.

What about Ireland?

Some Member States contribute more money to the EU than they receive back in funding each year (net contributors) while some receive more than they pay (net recipients).  Every Member State contributes to the EU budget, whether they are a net contributor or a net recipient. Ireland has been a net recipient since joining the EU in 1973. From 1973 to 2011 Ireland received €67 billion in EU funding and contributed around €25 billion, meaning that it has been a net recipient of over €42 billion. Ireland has received funding from the EU Common Agriculture Policy, from the Cohesion and Structural Funds for investment in infrastructure and human capital including education and training.  It has also received EU funding for other priority areas such as fisheries, research, and the globalisation fund.  Ireland’s annual contribution to the EU for 2011 was approximately €1.35 billion.

The Department of Finance maintains detailed statistics on what Ireland receives from and contributes to the EU budget.


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