Opinion No 9/99

on a proposal for a Council regulation (EC) on budgetary discipline

(presented pursuant to Article 279 of the EC Treaty)

(1999/C 334/01)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community and in particular Article 279 thereof,

Having regard to the proposal for a Council Regulation (EC) on budgetary discipline of 14 July 1999(1) replacing and repealing Council Decision 94/729/EC,

Having regard to the request from the Council for the European Court of Auditors' opinion on the proposal, which the Court received on 21 September 1999,

Whereas the strengthening of budgetary discipline should improve compliance with the principles of sound management of the Community's public finances;

Whereas the effect of the proposed regulation is to uncouple the agricultural guideline from the financial perspective by creating a supplementary margin for manoeuvre under the guideline;

Whereas the inclusion of rural development expenditure in EAGGF-Guarantee changes the nature of the operations financed by that fund,

HAS ADOPTED THE FOLLOWING OPINION:

THE AGRICULTURAL GUIDELINE

1. Even though the only aim of the agricultural guideline is to set an overall ceiling for expenditure, the way in which it is calculated is unnecessarily complex and the definition is imprecise.

Calculation methods

2. At present the guideline is calculated by reference to the agricultural expenditure incurred under the 1988 financial year, using a very complex method. The same method has been retained in the proposed regulation, which simply provides, in Article 3, for the base to be reconstructed theoretically for the 1995 year. It might be wise to simplify the method. The basis for the calculation could comprise the total for the latest known real expenditure under subsection B1 (EAGGF-Guarantee) of the budget.

Content of the guideline

3. The definition of the agricultural guideline that appears in Article 4 of the proposed regulation is imprecise. It refers without distinction to expenditure chargeable to budgetary appropriations, in the case of subsection B1, to expenditure associated with amounts specified in the financial perspective, in the case of pre-accession measures, and directly to the amounts relating to agriculture that are available for accession under the financial perspective. Furthermore, there is no justification for the provisions of Article 4(2), since depreciation of stocks, which is already included in subsection B1, does not apply to rural development expenditure.

LIMITS TO AGRICULTURAL EXPENDITURE

4. The objective of budgetary discipline is to provide the framework for compliance with the financial perspective. However, several factors and a certain lack of precision in the proposed regulation conflict with that objective.

Multiplicity of ceilings

5. Article 5(3) of the proposed regulation institutes specific limits for the appropriations relating to subsection B1, by means of fixed ceilings corresponding to the two subheadings 1a and 1b of the financial perspective. The amounts specified in the financial perspective for preaccession aid (heading 7) and for the appropriations for payments that are available for accession are, for their part, indicative ceilings. As for the agricultural guideline, that has become an independent instrument releasing a further margin which is supplementary to the financial perspective(2) and creating a global ceiling for the agricultural section of the latter.

6. In contrast with Decision 94/729/EC on budgetary discipline, which specifically ties heading 1 of the financial perspective to the agricultural guideline, the proposed regulation thus creates a multiplicity of ceilings which does nothing to clarify the concept of budgetary discipline. Moreover, as the Court has already pointed out in Opinion No 10/98(3), there is still a risk that the guideline may be exceeded, because the exact nature of accession expenditure has still not been identified and the amount has not yet been quantified by the Commission.

Classification of rural development appropriations

7. The rural development expenditure is for multiannual measures that form part of rural development plans or of specific programmes under the Structural Funds(4). Under Article 1(4) of the Financial Regulation, operations of this type give rise to the entry of differentiated appropriations in the budget and the commitment appropriations must cover the total cost of the multiannual obligations.

8. In the draft 2000 budget, however, this expenditure is covered by non-differentiated appropriations, entered in title 4 of subsection B1, covering only the annual tranches of the proposed operations. Similarly for heading 1b of the financial perspective which, although formulated in appropriations for commitments, does not cover the total cost of the multiannual programmes.

9. In the 1999 budget, where rural development measures of a similar kind were entered in subsection B2 (structural expenditure), the appropriations for commitments were approximately 80 % higher than the appropriations for payments. If this same ratio were applied to the appropriations in title 4 of the draft 2000 budget, the ceiling for heading 1b would already have been exceeded(5).

10. Lastly, the combination of compulsory expenditure and non-compulsory expenditure under the same heading of the financial perspective is a further source of confusion, in as far as the European Parliament's powers regarding the establishment of the budget, which are specifically protected under the very terms of the Interinstitutional Agreement, cannot be ignored where non-compulsory expenditure is concerned. Furthermore, the inclusion of non-compulsory expenditure in subsection B1, EAGGF-Guarantee, of the budget, means that a decision of the Council(6) and not a decision of Parliament(7), is required for transfers relating to that expenditure. This inconsistency should be clarified.

ADJUSTMENT OF EXPENDITURE

11. In order to respect the financial perspective, the proposed regulation provides for a series of measures that are to be implemented during the budgetary procedure or at the expenditure stage. The provisions of Articles 5 and 6 that deal with this are confused, indiscriminately mixing the ideas of adjusting budgetary appropriations, suspending advances and reducing payments.

12. In removing from Community financing eligible expenditure that has been duly executed by the paying agencies these various measures contravene budgetary principles, as well as the Financial Regulation, and, wrongly, oblige Member States to prefinance expenditure.

Budgetary principles

13. There are basic principles or rules which govern the acts of drawing up and implementing the budget, such as:

- - because of the compulsory nature of EAGGF-Guarantee expenditure(8), all agricultural expenditure incurred by paying agencies under specific regulations must give rise to the entry of the corresponding appropriations in the general budget;

- - the principle of annuality(9) requires the said expenditure to be charged to the financial year to which it relates;

- - the principle of specification(10) means that every appropriation must be earmarked for a specific purpose, in order to avoid any confusion between the various appropriations during budgetary authorisation and implementation.

14. The provisions of Articles 5 (7) and 6(6) of the proposal, whether applying to appropriations, payments or advances, ignore these rules and principles:

- - agricultural expenditure that has been legally incurred but exceeds the amount available under heading 1a of the financial perspective gives rise to a reduction of the appropriations or the payments;

- - the charging of the expenditure in question is deferred to the following financial year;

- - reducing only direct aid is tantamount to making the latter support the overruns on other budget headings or chapters.

15. These violations of budgetary rules and principles aim to respect the amount set by the financial perspective, but wrongly subordinate the legal obligation to finance eligible expenditure to respect for a limit that is purely an agreed limit. There is a risk that charging the unfunded amounts to the following financial year will create a carry-over of charges that might become permanent and cumulative.

Obligatory national prefinancing

16. The consequence of reducing the amount for reimbursement of direct aid to farmers, and similarly, of suspending the payment of monthly advances under EAGGF-Guarantee, is to impose on Member States an obligation to prefinance the corresponding regular expenditure that has been disbursed to beneficiaries by the paying agencies. The size of the sums involved could result in a relatively heavy increase in the financial burden.

17. This type of prefinancing obligation is contrary to Title VIII of the Financial Regulation and to Regulation (EC) No 1258/1999, which establishes a system of advance payments by the Commission for EAGGF-Guarantee and therefore rules out any prefinancing by Member States other than the technical prefinancing provided for in Article 5(2) of Regulation (EC) No 1258/1999.

18. To the extent that this type of prefinancing obligation is tantamount to taking a sort of forced loan from the Member States, it is contrary to the third subparagraph of Article 268 of the EC Treaty, which precludes borrowing as a means of financing Community expenditure.

Monetary reserve

19. Article 8 of the proposed regulation provides for the progressive reduction and, as from 2003, the abolition of the monetary reserve that is intended to cover euro/dollar exchange differences between the actual rate for the transaction and the rate of the budget forecasts for expenditure on export refunds. It is contrary to the principle of prudence to consider abolishing this reserve as long as the World Trade Organisation negotiations allow the retention of export refunds.

This opinion was adopted by the Court of Auditors in Luxembourg at the meeting of 28 October 1999.

For the Court of Auditors

Jan O. KARLSSON

President

(1) COM (1999) 364 final.

(2) Of the order of EUR 4000 million for the financial year 2000.

(3) OJ C 401, 22.12.1998.

(4) This fact is actually admitted by the proposed regulation (Article 6(3), which introduces special monitoring arrangements and is the result of provisions of Council Regulation (EC) No1257/1999 of 17 May 1999,OJ L 160, 26.6.1999, p. 80.

(5) The amount of additional appropriations for commitment would be around EUR 3000 million and the overrun in relation to heading 1b would be around EUR 2000 million.

(6) Article 104 of the Financial Regulation regarding the procedure for budgetary transfers.

(7) Article 26(5)(b) of the Financial Regulation.

(8) Treaty, Article 272; Financial Regulation, Articles 1, 4 and 22.

(9) Treaty, Articles 268, 271, 272; Financial Regulation, Articles 1, 6, 7.

(10) Treaty, Article 271; Financial Regulation, Articles 5, 19 and 26.