Committee Reports > List of Committees > Joint > 1975 > Committee on the Secondary Legislation of the European Communities > Report No. 05 - European Parliament Budgetary Powers

REPORT

A. INTRODUCTION

1. Proposals for strengthening Parliament’s Budgetary Powers

The Council of Ministers has, on the basis of submissions made to it by the Commission, agreed to proposals for strengthening the budgetary powers of the European Parliament. These proposals are now before the European Parliament and if they are to be implemented, will require eventually ratification by the Member States in accordance with their respective constitutional requirements. The Joint Committee has agreed on this report having considered the documents relevant to the proposals which are listed in the Schedule to the report.

2. Nomenclature

In Ireland the term “Budget” connotates taxation proposals, being reserved for the annual proposals of the Minister for Finance for adjusting revenue to meet the Government’s estimated expenditure. The estimated expenditure of the Government is considered and authorised separately by the Dáil. In continental Parliaments on the other hand, the Budget means the legislative proposals approving both the projected revenue and expenditure of the Executive. The European Communities follow the continental practice. [See, for example, Article 203 of the EEC Treaty, as amended].

It will be seen that the budgetary powers of the European Parliament both existing and projected are substantially powers over the proposed expenditure of the institutions of the Communities. If such powers are to be compared with the powers of the Dáil it is with the latter’s powers in relation to the annual Estimates and Appropriation Bill rather than with those appertaining to the annual Financial Resolutions (Budget) and Finance Bill that the comparison should be made.

3. Background

The case for the European Parliament exercising control over the expenditure of the Communities’ institutions rests on the proposition that “in all parliamentary democracies, Parliament alone can approve new expenditure, even when the constitution restricts the right to propose such expenditure to the Executive”. [European Parliament’s Resolution of 5/10/1973: par 10]. Under the original Community system the Council, an executive body, had the exclusive power of determining what expenditure was charged to the Budget. Under the Treaty of Luxembourg of 1970 the Parliament was given some budgetary powers notably over that small proportion of the Budget which deals with the functioning of the Communities as distinct from the major part which is the automatic consequence of operating the Communities’ rules which derive directly from the Treaties.

It may be mentioned that in Ireland the Constitution “restricts the right to propose such expenditure to the Executive”. Article 17.2^º of the Constitution in effect enables the Government itself to determine the upper limit of its own expenditure though the Dáil has the legal power to decline to authorise such expenditure in whole or in part.

B. THE BUDGET OF THE COMMUNITIES

4. Resources of the Community

Proposals adopted in 1970 involved the replacement of financial contributions from Member States by the Communities’ own resources. This system when fully operational will ensure that expenditure will be defrayed from the following three resources accruing automatically to the Communities:—

(a) Levies on imports of agricultural products;

(b) Common Customs Tariff of the Communities; and

(c) a portion of the revenue from VAT not exceeding the yield from a rate of 1 % or financial contributions according to a fixed scale.

At present the Communities have available the resources at (a) and (b) [subject to a rebate of 10% to cover the collection costs of the Member States], but pending a decision on a common assessment basis, no revenue is yet available from VAT. For the present it is replaced by direct financial contributions from Member States based on their shares in the Community G.N.P.

As the resources accruable under (a) and (b) depend on trade patterns and as the direct contributions of Member States are fixed, there is provision for avoiding budgetary imbalance by making annual variations in the total actual share of each Member State in the Budget.

To meet British objections, the Heads of Government at the recent Dublin Summit introduced a correcting mechanism whereby refunds would be made to a Member State with a lower growth rate than its partners if its actual Budget contribution was more than 10 per cent higher than its share of the Community G.N.P.

5. Ireland’s contribution to the budget

The full own resources system as outlined above will not apply in the case of Ireland until 1980. In the meantime by the Treaty of Accession, our actual share is limited to a small increasing percentage of a sum arrived at by adding “own resources” and our direct financial contribution (based on a notional share of the Communities G.N.P.). In 1975 our maximum total contribution is limited to 0-4284% of the Budget. Because of the relatively large revenue collected from Customs duties, our liability has hitherto been met entirely from “own resources” but current estimates suggest that this position will change after this year.

6. Structure of the budget

The Budget of the European Communities comprises four separate sections dealing respectively with the European Parliament, the Council of Ministers, the European Commission and the Court of Justice. The Commission section contains the appropriations for the major areas of Community activity i.e. the European Social Fund, the European Agricultural Guarantee Fund, the European Agricultural Guidance Fund and the Research and Investment Programme. It will also contain the Regional Development Fund. It is, of course, by far the most important section and will absorb about 98% of the total budget for 1975.

7. Defraying of expenditure of Communities

Most Community activities are financed from the general budget but certain items are financed under separate arrangements. Thus the European Development Fund and financial aid to Turkey are financed directly by Member States according to special negotiated scales and supplementary Euratom programmes may be financed in similar fashion.

8. Adoption of the budget

The financial year runs from 1 January to 31 December. The process of preparing the draft general budget for each year begins in the Commission not later than the 1 July in the preceding year. The Commission consolidates the draft estimates for the various sections and refers the preliminary draft budget to the Council not later than 1 September each year. The Council, acting by a qualified majority*, “establishes the draft budget” (i.e. decides on the relevant appropriations) and refers it to the European Parliament before 5 October with an explanatory memorandum defining the main trends of the budget and the reasons for departing from the preliminary draft budget.

Parliament must act within 45 days of the draft budget being placed before it. If it gives its approval the budget stands as finally adopted. However, Parliament has within certain limits the right to propose modifications or adopt amendments, the precise nature of which are discussed in the next section of this report. If it exercises this right, the Council acting by a qualified majority makes the final decision on the proposed modifications. It may itself also propose modifications of the amendments adopted by Parliament and the final decision on any such is taken by Parliament within 15 days acting by a majority of its members and 3/5 of the votes cast.

C. THE PRESENT POWERS OF THE EUROPEAN PARLIAMENT IN RELATION TO THE BUDGET

9. Obligatory and non-obligatory expenditure

Under the Treaties at present the Parliament has the right

(a) in relation to “expenditure necessarily resulting from the Treaties or from acts adopted in accordance therewith” to propose (acting by an absolute majority of the votes cast) modification to the Council, and

(b) in relation to other expenditure to amend the Budget (acting by a majority of its Members).

The expenditure referred to at (a) is commonly called “obligatory expenditure” and that dealt with in (b) is known as “non-obligatory expenditure”.

By virtue of the Council declaration of 22 April, 1970 “non-obligatory expenditure”, has hitherto consisted almost entirely of administration expenses representing 3 %-4 % of the total budget. As it now includes the Social Fund it accounts for 15% of the total.

The Social Fund was classified by the Commission as non-obligatory and accepted by the Council as such because the total expenditure from the Fund has not been limited by Regulation and can therefore be regarded as not necessarily resulting from an act adopted in accordance with the EEC Treaty. The European Parliament sought to have the Regional Development Fund put into this category also but the Council has been insisting that because the proposed expenditure for the next three years has been fixed by Regulation it must be treated as obligatory at least in that period.

Modifications to “obligatory expenditure” stand only if approved by the Council acting by a qualified majority. Although the amendments to “non-obligatory expenditure” may be modified by the Council, the final decision on such modifications is taken by Parliament in the manner described in section 8 of this report.

10. Limitation on Parliament’s power to increase non-obligatory expenditure

The Parliament’s power to amend the budgetary provisions in respect of non-obligatory expenditure includes the right to increase the total amount of that expenditure but its power in this regard is circumscribed in the following manner.

The Commission in the first instance fixes a maximum rate of increase for the year over such expenditure in the preceding year. The Council in considering the budget is bound by the maximum rate. If the Council in increasing the provision for non-obligatory expenditure exceeds half the maximum rate, the Parliament may increase expenditure up to a further half of the maximum rate. (For example, if the maximum rate was fixed at 10% and the Council increased the expenditure by 6% the Parliament could then increase it by a further 5% making the total increase 11 %). If the Council do not increase the proposed non-obligatory expenditure by more than half the maximum rate, it would mean that Parliament can still increase the total amount provided the total actual increase does not exceed the maximum rate. The maximum rate as fixed by the Commission is calculated by reference to the trend, in terms of volume, of G.N.P. within the Community, average variation in the budgets of Member States and the trend in the cost of living during the preceding year. If, in exceptional circumstances, the Parliament, the Council or the Commission considers the rate fixed too low, a new maximum rate may be fixed by agreement between the Council (acting by qualified majority) and the Parliament (acting by a majority of its members and three-fifths of the votes cast).

D. PROPOSED STRENGTHENING OF BUDGETARY POWERS OF EUROPEAN PARLIAMENT

The new powers (proposed) to be conferred on the Parliament in relation to the Budget are set out hereunder. Apart from the proposed conciliation procedure the changes would involve amendment of the basic Treaties.

11. Modifications to obligatory expenditure

The European Parliament would have power, in relation to obligatory expenditure, to propose modifications in amounts allocated under different headings provided the net result would not involve an increase in the total expenditure proposed for any institution. Any such modification would be final unless rejected by the Council acting by a qualified majority. This, in effect, would be a reversal of the present position whereby modifications proposed by Parliament do not stand unless accepted by the Council, acting by a qualified majority.

12. Power to reject the entire draft budget

Parliament, acting by a majority of its members and two-thirds of the votes cast, would be empowered to reject the draft budget in its entirety, if there were important reasons for doing so, and to ask that a new draft be submitted to it.

13. Court of Auditors

A Court of Auditors, replacing the present Audit Board, would be established to audit the accounts of the Communities’ Institutions and of other bodies created by the Communities where the constituent instrument so provides. The Court would assist Parliament and Council in exercising their rights of control over the implementation of the budget and would work closely with the Parliament’s own Accounts Committee.

The Court which would consist of nine members would be appointed by the Council acting unanimously after consultation with the Parliament.

14. Discharge to Commission in respect of the budget

At present the Treaties provide that “the Council and the Assembly (European Parliament) shall give a discharge to the Commission in respect of the implementation of the budget”. The proposed amendment provides that the European Parliament alone would exercise this function. It would act, however, on a recommendation of the Council acting by a qualified majority.

15. Establishment of a conciliation procedure

A Conciliation Procedure would be established to enable agreement be reached between Council and Parliament on “Community acts of general application which have appreciable financial implications and of which adoption is not required by virtue of acts already in existence”. It would be initiated if the Council intended to depart from the opinion delivered by the Parliament. The procedure would involve the establishment of a Conciliation Committee consisting of the Council and representatives of Parliament in the work of which the Commission would participate. In this Committee, the Parliament and the Council would attempt to settle disagreements between them on the basis of proposals put forward by the Commission.

E. CONCLUSIONS OF JOINT COMMITTEE

16. General view

In general the Joint Committee welcomes moves to extend the budgetary powers of the European Parliament and views these developments as reinforcing the case for early direct elections to that body. However, it has no objection in principle to ultimate Executive control over the limit of expenditure. The concept of “non-obligatory expenditure” is to some extent a derogation from this principle but in the view of the Joint Committee it is a valuable device for reasonably extending the powers of the Parliament in the area of finance. As new types of Community expenditure emerge which could properly be regarded as not necessarily resulting from Treaty obligations, the Parliament ought automatically acquire control over significant areas of expenditure and it is in this direction that the Joint Committee would wish to see the budgetary powers of Parliament extended.

17. Modifications of obligatory expenditure

The Joint Committee is in favour of the ultimate control of obligatory expenditure remaining with the Council. It notes that it is proposed that, provided the total for the particular institution in not exceeded, modifications of obligatory expenditure by Parliament would stand unless set aside by the Council acting by a qualified majority. Thus, for example, if the only modification proposed by Parliament were a reduction of F.E.O.G.A. expenditure (almost 74% of the 1975 budget) it would stand unless rejected by the Council. As the Council would have already accepted the draft budget acting by a qualified majority, it may well be that the same qualified majority would be available for rejecting any substantial modification but in a fluid situation the intervention of Parliament might be decisive. The ultimate control does, however, rest with the Council and accordingly the Joint Committee welcomes the proposed change in the interests of enhancing the status of the Parliament.

18. Rejection of budget

The Joint Committee notes that the proposed power of the Parliament to reject the whole budget for important reasons is not an absolute one but rather enables Parliament to require an alternative draft budget to be submitted to it. It is assumed that Parliament would not be empowered to repeat the process by rejecting the second draft. Of course the rejection of the entire budget in the first instance would be a very drastic step which presumably would be taken only in a crisis situation. Nevertheless, as a reserve power it is an important one which should increase Parliament’s influence in the budgetary sphere and the Joint Committee supports the proposal.

19. Amendments of non-obligatory expenditure

The Joint Committee considers that the present power of the Parliament to amend non-obligatory expenditure including the power to increase such expenditure to a limited extent is an important one. As the Social Fund has been classified as non-obligatory Parliament has already acquired ultimate control over 15 per cent of the total Budget expenditure. The Joint Committee welcomes this development and would favour any new funds of a similar kind that may be created being classified as non-obligatory. Moreover it supports the view of the Parliament itself that the Regional Development Fund should also be treated as non-obligatory expenditure and it trusts that the Parliament’s view may eventually prevail. Such developments would extend Parliament’s power over significant areas of Community expenditure which in the Joint Committee’s view should properly be under parliamentary control.

20. Other changes

The Joint Committee supports the proposed new Conciliation Procedure, the projected establishment of a Court of Auditors and the proposed conferring of power on Parliament to give a discharge to the Commission in the implementation of the Budget. It believes that these would be conducive to the Parliament’s exercising an increasing influence on the financial affairs of the Communities.

(Signed) CHARLES J. HAUGHEY,

Chairman of the Joint Committee.

7 th May, 1975.

*(Under the Treaties a qualified majority requires 41 votes in favour, cast by at least 6 members, out of a total of 58 votes of which Ireland has 3).