Member of the European Commission Responsible for the Budget

SPEECH/04/171

Michaele Schreyer

Member of the European Commission responsible for the Budget

Financial Perspective 2007 - 2013

Informal ECOFIN

Punchestown, 3 April 2004

The European Budget should support the ambitious objectives of the Union set by the European Council. At the same time the European budget must respect the principle of budgetary discipline.

The instrument to impose budgetary discipline in the European Union is the Own Resources Ceiling. It is decided by unanimity in Council and is ratified by all national parliaments.

The current Own Resources Ceiling is fixed at 1,31% of the GNI (Gross National Income) of the Union for commitments and at 1,24% of the GNI for payment appropriations.

Despite the ambitious objectives for the coming years, the Commission has decided not to propose an increase of the Own Resources Ceiling

-although the Own Resources Ceiling is the same since 1999

-although the framework now is calculated for 27 Member States

-and although the proposal includes the Solidarity Fund and the European Development Fund which are currently financed separately. The Commission's proposal stays even significantly below the ceilings.

Chart 1 shows the ceiling of the Financial Perspectives in commitments against the Own Resources Ceiling. During the nineties the ceiling for the Financial Perspectives in commitments was above 1,20% of GDP. In Agenda 2000 the ceiling was significantly lowered to make room for enlargement. For the current year the ceiling for commitment appropriations is 1,15%.

From 2007 on the Commission proposes to use some of the margin below the ceiling for the full integration of the new Member States, to include Bulgaria and Romania and to budgetise the European Development Fund and the Solidarity Fund.

Chart 2 shows the profile for payment ceilings of the Financial Perspective compared to the ceiling for own resources of 1,24% GNI.

Here, the time profil is similar. The payments ceiling, which during the nineties was higher than 1,2% of GDP, was reduced in Agenda 2000. For Agenda 2000 the average payment ceiling is 1,10% of GNI. For the year 2004 the ceiling for payments in Agenda 2000 is 1,11% of GNI. Never during the past ten years the ceiling in the Financial Perspective for the EU 15 or from 2004 on for the EU 25 was 1,0%.

For the new financial period the payment ceiling will continue to stay on average far below the Own Resources Ceiling.

How did the Commission calculate the payment profile for the new proposal? We have not invented anything new. We used the payment schedules for the Copenhagen negotiations. These payment schedules had been agreed by the negotiators of the Council and they are also the basis for our current budget plan. Let me also remind you that the budget 2004 decided by Council – i.e. by ECOFIN – and by Parliament, amounts to €111bn in commitment appropriations and €100bn in payments.

The result of these payment schedules shows that over all of the period a reasonable margin is left underneath the ceiling, except at the peak in 2008. The reasons for this peak are that the final payments for the current structural funds coincide with the advanced payments for the new structural funds envelopes. This can of course be modified by amending the parameters for advance payments.

A comparison between the Agenda 2000 figures and the new proposal is in the table of Chart 3.

The average payments for the agenda 2000 are at 1,10% of GNI. For the new proposal it is 1,14% of GNI. So, the increase is moderate.

For any comparison we must also keep in mind that the figures for the new proposal include both the EDF from 2008 onwards and the Solidarity Fund, while Agenda 2000 does not include them. They are at the moment accounted for separately.

If we included also these two funds in the figures for the Agenda 2000, the comparable figure for the current period would be 1,12% of GNI. This shows that the difference is really not unreasonable in the light of new tasks and further enlargement.

We can also compare the two periods in yet another way:

If we take the amounts for the EDF out of the new proposal, exclude the Solidarity Fund and the amounts foreseen for Bulgaria and Romania, i.e. comparing the same number of Member States as we have at the end of 2006, then the average payment ceiling in the Commission's proposal for the years 2007-2013 would only be at 1,09%. This is actually below Agenda 2000.

This result – to almost maintain the payment ceiling for the next financial perspective with new tasks and the full integration of the new Member States - is only possible because of the strong consolidation of the European Budget for the EU-15 in the recent years and because the Commission proposes reallocations.

The increase in the EU budget has been far lower than the increase in total public expenditure for most of the Member States and lower than the average. It also has been significantly lower than the increase in GNI of the Union. The share of GNI going to the EU budget has decreased by 19%. Only Finland had a stronger decrease in the share of public expenditure in GNI.

So far, I have talked about the ceilings. Now I would like to draw the attention to the change in the budgetary structure.

Beneath the moderate development in the ceilings there is a massive change in the structure of the budget.

Chart 5 shows the proposed strong focus on the expenditure heading "competitiveness for growth and employment". The share of this category in the total budget would increase from 7% in 2004 to 16% in 2013.

The share of Cohesion Funds would stay at the level of one third of the budget, while the share for agricultural expenditure would dramatically decrease.

The share of financial programmes for the new category 'Citizenship, freedom, security and justice' would be doubled, and the share of external policy would assume about 10% of commitments.

The next chart is underlying this restructuring.

It shows the reallocation in terms of percentage of GNI. How much will be allocated to the different policy areas?

Programmes on EU level dedicated to the Lisbon goals have currently a volume equal to 0,08% of EU-GNI.At the end of the next period they would assume 0,21% of GNI, mainly by strengthening research, by increasing the funds for mobility programmes in education and for the financial support to construct Transeuropean Networks in transport and energy. All these programmes are dedicated to making better use of the great economic potential that the enlarged internal market provides.

For Cohesion policy the share of GNI used would also increase as more people will live in regions with a per-capita GDP below 75% of the average. On the other hand, the amount of allocations to the agricultural sector will decrease significantly.

The share of the common GNI allocated to Community programmes in the field of asylum policy, combating fraud, combating terrorisms, border protection and other measures will triple during the next period. Nevertheless, it will be only about 0,03% of GNI to be spent in this field.

There is not only reallocation between policy areas to strengthen new priorities, but there is, of course, also a reallocation between old and new Member States.

For agricultural funds this was already decided in the Brussels Council 2002. The growing share of new Member States is fixed in the accession treaties. As the decision in the Brussels Council was taken for 25 Member States, the amounts foreseen for Bulgaria and Romania have to be added.

Also for cohesion policy the shifting between the old and new Member States is a fundamental element in the Commission's proposal.

The share of means in this category going to the new Member States will increase annually. The change regarding the new and the old Member States is very visible in the figures of chart7.

The share of GNI allocated to regions in the old Member States will decrease from year to year. The inverse applies to the new Member States in order to help them catch up economically.

I think that these figures prove that behind the global figures in the Commission's proposal there is a substantial restructuring effort according to the change in the political priorities for the future of the European Union.

Let me add some remarks on the proposals for the financing sidethat the Commission has included in its Communication.

How should the European Budget be financed in the future? What are the optimal resources for the European level?In recent years the structure in revenues has changeddramatically. The share financed by customs and the tax based resource VAT has decreased rapidly while the contribution directly financed from the national budgets is now the main resource.

This has advantages –for example, the GNI-share is easy to administrate – but it has the important disadvantage that the EU´s resources no longer directly mirror the fact that the Union is not only a Union of Member States but a Union of Member States and citizens.

According to the Own Resources Decision the Commission has to make a general review of the Own Resources System accompanied, if necessary, by appropriate proposals. We will provide this Own Resources Report by July.

This report will not be a theoretical study on a wide range of possible resources but it will focus on three candidates for a tax based resource – a genuine VAT, an energy tax and a corporate income tax.

However, the Commission will not immediately launch a legal proposal for amending the Own Resource Decision in this respect for the next years but design possible road maps for a change.

On the other hand, as for the correction mechanism mentioned by Romano Prodi, by summer this year we will make the proposal to introduce a Generalised Correction Mechanism.

The Commission is convinced that complementary to the principle of solidarity on the expenditure side of the budget there should be the assurance of fair burden sharing on the financing side.

Let me conclude:

The Commission's proposal for the new Financial perspective is based on strong principles:

the principle that common action and common financing must give an added European value;

-the principle of solidarity;

-the principle of budgetary discipline and

-the principle of prioritisation to ensure that the European budget supports the goals:

-to enhance sustainable growth

-to create a common area of freedom, security and justice

-to strengthen Europe's role in the world

-and to make enlargement a success

I thank the Irish Presidency for the opportunity to make this presentation.