FINANCIAL PERSPECTIVE 1987-1990 ( COMMISSION COMMUNICATION TO THE COUNCIL AND THE EUROPEAN PARLIAMENT )
Date: 1986-04-02
Institutions: Directorate-General for Budget, European Commission
Subjects: EAGGF, EU expenditure, EU policy, Structural Funds, general budget (EU), multiannual financial framework

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DE LA COMMISSION 

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DOCUMENTS "COM" 

COM (86) 201 

Vol. 1986/0109 

 
 
 
 
 
 
 
 
 
 
 
 
Disclaimer 

Conformément  au  règlement  (CEE,  Euratom)  n°  354/83  du  Conseil  du  1er  février  1983 
concernant  l'ouverture  au  public  des  archives  historiques  de  la  Communauté  économique 
européenne et de la Communauté européenne de l'énergie atomique (JO L 43 du 15.2.1983, 
p.  1), tel que modifié  par le règlement (CE,  Euratom) n° 1700/2003  du  22 septembre 2003 
(JO L 243 du 27.9.2003, p. 1), ce dossier est ouvert au public. Le cas échéant, les documents 
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In  accordance  with  Council  Regulation  (EEC,  Euratom)  No  354/83  of  1  February  1983 
concerning  the  opening  to  the  public  of  the  historical  archives  of  the  European  Economic 
Community  and  the  European  Atomic  Energy  Community  (OJ  L  43,  15.2.1983,  p.  1),  as 
amended  by  Regulation  (EC,  Euratom)  No  1700/2003  of  22  September  2003  (OJ  L  243, 
27.9.2003, p. 1), this file is open to the public. Where necessary, classified documents in this 
file have been declassified in conformity with Article 5 of the aforementioned regulation. 

In  Übereinstimmung  mit  der  Verordnung  (EWG,  Euratom)  Nr.  354/83  des  Rates  vom  1. 
Februar  1983  über  die  Freigabe  der  historischen  Archive  der  Europäischen 
Wirtschaftsgemeinschaft und der Europäischen Atomgemeinschaft (ABI. L 43 vom 15.2.1983, 
S. 1), geändert durch die Verordnung (EG, Euratom) Nr. 1700/2003 vom 22. September 2003 
(ABI.  L  243  vom  27.9.2003,  S.  1),  ist  diese  Datei  der  Öffentlichkeit  zugänglich.  Soweit 
erforderlich,  wurden  die  Verschlusssachen  in  dieser  Datei  in Übereinstimmung mit  Artikel  5 
der genannten Verordnung freigegeben. 

 
COMMISSION  OF  THE  EUROPEAN  COMMUNITIES

COM(86)  201  final 

Brussels,  3 April  1986

FINANCIAL PERSPECTIVE 1987-1990

(Commission communication to the council and the European Parliament)

C0M(86)  201  finam

FINANCIAL PERSPECTIVE 1987-90

(Communication  from  the  Commissi on  to  the  Bu d ge tar y  Authority)

IN T RODU CT ION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  

Part  1.  The Budgetary Background  . . . . . . . . . . . . . . . . . .  

Page

2

6

Part  2.  The  Financial  Perspective  1987-90  . . . . . . . . . . . .  

13

GENERAL INTRODUCTION

The  four-year  budget  programme  which  is  presented here  is  intended  to help 
develop  the  structure  of  the  Community  budget  in  a  way  which  assists  the 
achievement of  the most  important  Community objectives.

Such a programme  is more than ever necessary,  because,  in the medium term, 
the  Community  budget  can  only  be  expected  to  increase  by  relatively 
moderate  amounts  from  year  to  year. 
If  substantial  progress  towards 
Community goals  is  to  be  achieved,  these  changes  must  be  concentrated  in 
priority areas  so that,  by their  accumulation,  significant  development  can 
take place over a period.  The  foui— year programme  is  a necessary  instrument 
to help  in this process.

As  has  been  stated  elsewhere,  the  Commission  believes  that  the  full 
realisation  of  the  Communities'  objectives  will  only  be  possible  if 
adequate  resources  are made available.

In presenting this  four-year budget  programme,  the  Commission  is  endorsing 
neither the existing  limit  on own  resources,  nor the artificial  restraints 
which  are  being  imposed  on  the  development  of  worthwhile  Community 
expenditure,  constraints which  are not  in the  tong  run  consistent with the 
achievement of  all  the goals  to which  the  Community  is  committed.

Rather,  taking account  of the  likely availability of  revenue  in the  coming 
period,  the  Commission  is  seeking  to  allocate  priorities  among  desirable 
policies  in  a way  that  enables  it  to  achieve at  least  certain  key  targets. 
This,  of  necessity,  implies the  reduction of  resources allocated  to  some 
if  not  their  postponement  -  a  situation  which  in  other 
policies, 
circumstances would  be  considered undesirable.

Part  1  - The Budgetary Background

Unhealthy budgetary  developments  in  certain  key  policy  areas  in past  years 
are  now  imposing  serious  constraints  on  Community  policy  development. 
Unless a  major  cleaning  up operation  takes  place,  these will  make  it  very 
difficult  to  implement  fundamental  improvements  in  Community policies

In  the  Common  Agricultural  Policy  important  changes  in  regulations  were 
decided  in  1984  on  the  basis  of  proposals  for  savings  measures  introduced 
by the  Commission  in  1983.  However,  this was not  sufficient  to  contain  the 
pressure  inherent  in the existing policy,  even though  the underlying  costs 
were  to  a  large  extent  translated  into  growth  of  agricultural  stocks  or 
hidden by  the  fact  that  world  market  prices  were  artificially  inflated  by 
an  exceptionally  high  dollar  rate  vis-a-vis  the  ECU.  The  need  to  manage 
agricultural  stocks  in  the  face  of  more  realistic  world  market  prices  has 
now  revealed the  full  cost  of  the existing agricultural  policy.

In  the  Community's  Structural  Funds  there  has  been  an  unprecedented  build 
up  of  unliquidated  commitments  in  the  recent  years. 
This  is  partly  the 
result  of  a  conscious  decision  to  increase  the  role  of  activity  of  the 
slower  than  expected 
funds,  but  it  has  been  greatly  reinforced  by  the 
lack  of  payment 
implementation  of  the  projects  contracted,  and  by  the 
appropriations  granted by the Budgetary Authority.

Irrespective  of  the  reason,  the  out sta n d i n g   con tractual  commitme nts  must  be 
honoured  through  a  rather  steep  increase  in  payment  a p p r o p r i a t i o n s   over  the 
coming  years.

In parallel  with the above mentioned  increase  in outstanding payment  claims 
which  will  be  presented  in  the  future,  the  total  expenditure  in  the 
Community exceeded the  1.0% VAT  ceiling  in  1984 and has  gradually  increased 
since then.  This  is  partly due to  realised  EAGGF expenditure  and partly due 
to  the  compensation mechanisms  for the  correction of  budgetary  imbalances. 
Taking  into  account  the  finance  provided  through  intergovernmental 
agreements  in  1984  and  1985  this  implies  an  equivalent  VAT  rate  of  welt 
over  1.0%  in both these years.

Taken  together  these  developments  mean  that  explicitly  or  implicitly  the 
additional own  resources  given to  the  Community  by the  increase  in  the VAT 
ceiling  to  1.4%  were  already  substantially  exhausted  by  the  time  they 
entered  into force.

Part  2 - The  Financial  Perspective  1987-90

The period  from 1987  to  1990 will  be  characterised, on the  resource  side by 
an underlying  rate of  increase of  around 6 pet.  On the expenditure  side  it 
will  see  the  gradually  increasing  participation  of  Spain  and  Portugal  in 
Community  policies,  and  the  re-shaping  of  the  budget  in  an  attempt  to 
ensure  that  priority political  commitments at  least  are achieved.  This,  of 
necessity,  will  involve the postponement of  actions arising from some past 
engagements.

Barring  exceptional  circumstances  the  Commission  is  committed 
to 
containing  the  growth  in  expenditure  on  the  Common  Agricultural  Policy 
below  the  increase^ in  own  resources.  In  the  case  of  expenditure  arising 
from  the  progressive  integration  of  Spain  and  Portugal  into  the  Policy, 
this  expenditure  will  be  incorporated  on  the  basis  of  concrete  forecasts 
for the  first years.

As  the  problem  of  surplus  stocks  presents  a  serious  encumbrance  on  the 
financial  future  of  the  common  agricultural  policy,  the  Commission  will 
implement  a  programme  for  running  down  stocks.  The  necessary  finance  for 
this will  have to be  found within the guideline.

As  regards  the development  of  policies, 
a major effort  is  made  in  respect 
of  research  which  is  one  of  the  main  determinants  of  the  competitiveness, 
employment  and standard of  living  in  Europe.

EAGGF  Guidance  Section  expenditure  will  increase  to  take  up  the  aggregate 
amount  of  6.350  MECU  agree  by  the  Council  for  1985-89.  The  problem  of 
containing  the  cost  of  the  past  for  the  ERDF  and  the  Social  Fund  implies 
that  apart  from  the  enlargement  effect  in  the  Social  Fund  only  a  modest 
increase  in  commitments  in  real  terms  is  provided  for  in  1987  and  1988. 
Taken  together, 
the  real  increase  in  the  three  Structural  Funds  is 
sufficient  to  cover  the  requirement  of  2.500  MECU  for  contributions  over 
The  direct 
seven  years  to  the  Integrated  Mediterranean  Programmes. 
contributions  to the  IMPs  are also provided for  in  full.

Development  cooperation  and  certain  other expenditure  items will  increase 
at  a  rate which maintains  the  same  level  of  expenditure  at  constant  prices.

-   4  -

A  specific  provision  is  made  to  enable  the  development  of  new  policies.
When  adopted,  these  will  be  budgetized  and  included  in  the  revised
multiannual  budget  perspectives.  This would,  for example,  apply  to any new 
policy actions  arising out  of  the  Single  Act,  which  the  Commission proposed 
subsequent  to  its  ratification. 
A  case  in  point  is  the  policy  for 
implementing the objective of  cohesion.  The budgetary  consequences- of  this 
policy  is  likely  to  be shared, between  a  re-allocation of the  appropriations 
within  the  Structural  Funds  and  new  appropriations  which  are  included  in 
the provision  for  new policies.

All  the  figures  take  account  of  the  financial,  impact  of  enlargement.  The 
Act  of  Accession  provide  for  a  refund to  Spain and  Portugal  over  six  years 
of  a  declining  percentage  of  the  VAT  or  financial  contributions.  Between 
1986  and  1990  this  percentage  will  fall  in  stages  from  87  pet  to  25  pet.
This  means  that  by  1990  the  integration  of  the  new  Member  States  onthe 
expenditure  side  will  be  well  advanced  and  that  the  automatic  refunds 
(compulsory  expenditure)  will  have given way to policy expenditure,  either 
or 
compulsory 
non-compuIsory.

agricultural 

particular 

policy) 

common 

the 

(in 

The  increase  in  policy  expenditure  in  Spain  and  Portugal  leads  to  a 
significant  rate  of  increase  in  non-compulsory  expenditure. 
Further, 
non-compulsory  expenditure  such  as  that  on  research  and other  new policies 
is  the  most  dynamic  element  in  the budget.  It  is  therefore not  surprising 
that  the  rate of  increase  in  non-compulsory expenditure  is  in  general  much 
higher than  the maximum  rate.

The  1986  figures  take  account  of  a  1986  supplementary  and  amending  budget 
of  approximately  2.500  MECU. 
The  breakdown  by  sector  (EA6GF  Guarantee 
Section  :  1.000  MECU,  Structural  Funds  :  750  MECU,  refunds  to  Member
750  MECU)  represent  a  working  assumption  and  it  is  without
States: 
prejudice  to  the  subsequent  decisions  of  the  Commission  in  adopting  a 
preliminary  draft  supplementary  and amending  budget.  The  aggregate amount 
as  well  as  the  breakdown  is  dictated  by  the  available  resources  up  to  the 
1.4% VAT  ceiling.  This does not fully  reflect  the actual  needs of the  Community 
for  1986,  as evidenced by the  Commission's  Report  on the  situation in the 
Structural  Funds,  and the evolution in the $/ECU exchange  rate.

r -   5  -

P a rt  1  -   The  Budgetary  Background  .................................................  

A.  The development  in budget volume  1983-86  . . .  

B.  Trends  in  EAGGF Guarantee Expenditure 1983-86 

Page

6

6

8

C.  The emerging problems  in the  Structural  Funds  1980-86  10

D.  Summary  . . . . . . . . . . . . . . . . . . . . . . . .  

12

  6 

-

-

PART 1  - THE BUDGETARY BACKGROUND

A.  T he  Development  in  Budget  Vol ume  1983 86

1986.  This  conclusion  was  duly

At  the  European  Council  held  in  Fontainebleau  in  June  1984  the  Haads 
State and Government  concluded that  an  increase  in  the  ceiling on VAT  rates 
should  take  effect  from  January  1, 
implemented by the  ratification by all  Member  States of  the  New  Decision on 
own  resources  just  before the end of  1985.
The  increase  in  the  Community's  own  resources  was  intended  to  cover  the 
budgetary  costs  of  a  significant  and  qualitative  development  of  the 
Community's  policies. 
institutions  to  react  to  the  foreseeable  consequences  of  the  nherent 
trends  in  e x i sting  p o l i cies ,  esp ec i a l l y   the  Common  Agr ic u l t u r a l   Policy  and 
the  Structural  Funds,  meant  that  the  room  for  manoeuvre under  the new VAT 
ceiling was more or  less  exhausted even before  it  entered  into force.

As  it  turned  out,  the  f a U u re  of 

Community

This  pre matur e  de p l e t i o n   of  the  later  increase  in  own  resources  was  made 
explicit  thr ough  the  use  of 
int ergov ernme ntal  a gr eemen ts  to  provide 
additional 
finance 
sig nificant,  but  har dly  recognized,  bui lding  up  of  o u t s t a n d i n g   commitments 
relating  to  the  Str uctur al  Funds  and  of  agr ic u l t u r a l   stocks  which  represent 
a  financial  o b l i g a t i o n   for  the  Community.

agr iculture. 

implicit 

also 

was 

for 

in 

It 

e

A  more  technical,  but  nonetheless  acutely  real,  fact  relating  to  the 
increase  in  own  resources  is  the  use  of  abatement  of  VAT  revenue  as  a 
compensation measure  to  alleviate budgetary  imbalances.  It  is evident  that 
budgetary  compensation  to  certain  Member  States  made  on  the  expenditure 
side  of  the  budget  limits  the  Community's  ability  to  pursue  and  develop 
policies  common to  all  Member  States.  The same  is  true,  however,  for the 
present  system  of  making  compensation  on  the  revenue  side of the budget, 
since  the  ceiling  on  VAT  rates  relate  to  the  highest  individual  rate  and 
not  to the average  rate.
Further,  the  compensation mechanism  incorporated  in the New  Decision on own 
resources  has  a  direct  link  to  the  structure  of  budget  expenditure.  Thus 
the two salient  features of budget  policy  in  recent  years,  namely  increased 
agricultural  expenditure  and held-back  payments  for  structural  measures  and 
for  liquidation  of  stocks,  have  the  mechanical  effect  of  increasing  the 
This  puts  further  pressure  on  the  actual 
compensation  to  the  UK. 
availability of  own  resources under the 1.4% VAT  ceiling.

- 7 -

Table  1

Simulation of  VAT  rates  and budgetary  compensations  1983-1986.

1985

1984

1983

r~ ~  
r
I 
I 
I 
I
r
r ~  
I 
I
|  VAT  rates  :  |
| 1,00
highest 
| 
| 0,88
uniform 
| 
I 0,52
|
| 
Lowest 
I 
I 
I 
|  Compensations| 1.670
|  (UK) 
I 
(1)  Including  Supplementary and  Rectifying Budget  1986

MECUl
I

1,14
1,05
0,80

1,23
1,13
0,83

1.200

1.510

1986

1,26
1,15
0,73

1.980

T  
I
|  1986(1)  |
I
I 
i 
i 
I 
I 
I 
I
1,40  |
I 
1,26  |
I 
0,70  I 
I 
I 
I
2.590  |
| 
I 
I 
I
I 

Note  : 
The  table  simulates  compensation  for  correction  of budgetary
imbalances  by  abatement  of  VAT  and  the  effect  of  intergovernmental 
agreements  translated  into  VAT  rates  throughout  the  period. 
In  1983 
compensation  was  made  on  the  expenditure  side  to  UK  and 
and  1984 
Germany.  The  1985  and  the  1986 
VAT  abatement  to  the  UK  has  been 
translated  into the equivalent  expenditure  to the UK and Germany.

Table  1  above  shows  in  a  summary  way  the  budgetary  situation  that  the 
present  Commission  inherited.  Far  from being  able to  plan  the  development 
of  Community  policies with  its  first  budget  proposal  under the  new  ceiling 
for  own  resources,  the  increase  was  largely  tied-up  already  when  the 
Commission entered office.  Thus,  additional  resources will  be  required  if 
there  is  to  be  further  development  of  the  Community.  While  preparing  for 
this,  decisions must  be made  in at  least  two policy areas.

On the one  hand,  it  must  be  realized that  the vast  majority of  agricultural 
spending  is  based  on  market  regulations  that  legally  oblige  the  Community 
to pay whatever the claims may be.  Budgetary envelopes  do not  in themselves 
change expenditure  in this  sector even  if they  provide a  warning signal  to 
the decision taking  instances.  If  the  level  is  to be  decreased the  set of 
regulations governing agricultural expenditure must  be  changed.  Further,  in 
the  agricultural  sector,  stocks  must  be  liquidated  -  physically  at  least 
and preferably  also  financially  -  if  budgetary  freedom  of  choice  is  to  be 
created for the future.

On  the  other  hand,  the  growth  of  the  volume  of  commitments  outstanding 
stablilized  over  the  medium  term 
under  the  Structural  Funds  must  be 
through  an  increase  in  the  payment  appropriations  for  this  purpose. 
Budgetary  envelopes  for  payment  appropriations  do  not  make  any  more  sense 
in this area than  in  agricultural  policy.  The payment  claims  are present  in 
the  form  of  bills  to  be  paid  and  they must  be paid  if  the  Community  is  to 
honour  its  legal  obligations.

The  trends  which  have  led  to  this  situation  are  analysed  in  more  depth 
below.  But  before  turning  to  this  analysis,  it  is  worth  mentioning  that 
although  the enlargement  of  the  Community was  realised  in  the first  year of 
the  present  Commission  the  great  political  significance  of  this  decision

  8 

-

-

does  not  translate  into  a  budgetary  constraint. 
The  volume  of  the  1986 
budget  exceeded the  1985  budget  by far,  but  so did the  resources available. 
For  the  coming  years  the  progressive  integration  of  the  two  new  Member 
States  into  Community policies will  be  largely balanced by the  reduction of 
reimbursements on  revenue  received.  The popular belief  that  the enlargement 
of  the  Community  is  a  major  element  of  depletion  of  own  resources  in  the 
first  years  is  therefore  unfounded.

B.  Trends  in  EAGGF Gurantee Expenditure  1983-86

As  pointed  out  above  the  set  of  regulations  making  up  the  Common 
Agricultural  Policy  are  also  the  legal  instruments  determining  budgetary 
expenditure  for this policy.

The  regulations  and  the  decisions  flowing  from  them  are  traditionally 
determined  principally  by  the  objectives  set  out  in  the  Treaty,  notably 
that  of  maintaining an  acceptable  income  level  in  the farming  Community.

In  turn,  the  budgetary  consequences  of this  policy are  heavily  influenced 
by  the  differences  between  the  Community  price  level  and  world  market 
prices,  and by  productivity growth  and the  ensuing volume  of  agricultural 
stocks.

The  CAP  is  currently  faced with  two major  problems  that  severely constrain 
The  first  is  that  productivity  gains 
the  budgetary  room  for  manoeuvre. 
combined  with  a  less  rapid  growth  in  internal  consumption 
and  limited 
possibilities  for  export  of  agricultural  produce  have  resulted  in  a  major 
increase  in  the  level  of  stocks  in  both  volume  and  book  value. 
An 
alternative  to  this  increase  in  the  value  of  stocks  -  given  the  level  of 
production -  would  have  been  an  increase  in  expenditure  in  the  years 
concerned  -  either  in  the  form  of  export  restitutions  or  in  the  form  of 
financial  depreciation  of  the  stocks.  In  the event,  this  expenditure  was 
postponed,  but  that  does  not  make  the expenditure  need disappear.  On the 
contrary,  the  expenditure  needed  has greatly  increased due  to the  failure 
to maintain  physical  stocks  at  reasonable  levels because  costs of  storage 
increase  with  the  level  of  stocks  and  because  the  market  value  of  stocks 
fall  steeply with  storage time - especially  for dairy products  and beef.

Table 2

Value of  agricultural  stocks  in the end of  the years  1982-1985

I

T _ _  

— r

|  Book  value 
|
I
I 
] 
I 
|  Market  value*|

1982 

~ T

4 . 0 0 0  

2 . 2 0 0  

I 
|  Loss  on 
|  book  value 
! 

—  

45% 

!
| 
|
I

I
| 
!

I
I
I
| 

I
r
|

I
I

1983 

7 . 0 0 0  

3 . 6 0 0  

49% 

I
|

I
I
|
I
|
I

|

I
I

1984 

8 . 8 0 0  

4 . 3 0 0  

51% 

I
|

I
!
| 
j
I
|

I
i
|

I
I

* Estimate.

MECU

1985 

1 0 . 5 0 0  

4 . 8 5 0  

54% 

I

|

|

|

The  second constraint  on  future  budget  expenditure  inherent  in  the present 
set of  regulations  is  the fact  that  the  high  and ultimately unsustainable 
dollar-ECU  rate  in  recent years has artil.eially depressed the  expenditure 
linked to the difference between the  Community and world market  prices.  As 
appears  from  the  graph  below  the  expenditure  on  price  support  would  have 
been  significantly  higher  in  the  years  1984-86  if  the  dollar  rate  had 
stayed on the  1983 average  level.  With a dollar-ECU  rate,  which  is  likely 
to  be  even  lower  in  1986  than  in  1983  it  is  not  surprising  that  the 
agricultural expenditure  in 1986  - and  possibly  in  future  years as  well - 
will  increase above expected  Levels given  the present  set of  regulations.

Graph  1

Simulated expenditure with a stable dollar-rate  1983-86

The  responsibility  for  changing  the  present  set  of  regulations  in  the 
agricultural  sector does not  belong to the Budgetary Authority,  but  to the 
Council  acting  on the  proposal of  the  Commission  and taking  account of the 
opinion  of  the  Parliament.  In  the  context  of  the  budget  it  is,  however, 
important  to  point out  that  any  decision  on  a  change  in  regulations  taken 
by the  relevant  Community  instances  is  likely to produce a budgetary effect 
only with  a certain  time delay which may  run  into many months.

  10 

-

-

albeit  partial, 
The  graph  below  shows  the  importance  of  the  decisions, 
taken  by  the  Council  in  1984  on  the  proposals  contained  in  C0MC83)  500.  It 
also  shows  clearly  the  delay  in  this  effect.  Actual  expenditure  is  compared 
with  a  simulated  situation  containing  no  change  in  policy.

Graph  2

The  budgetary  effects  of  saving  measures  introduced  in  1984

Mio  ECU

A

C.  The  Emerging  Problems  in  the  Structural  Funds  1980-1986

One  of  the  most  serious  problems  facing  the  present  Commission  when  it 
entered  office  was  the  consequence  of  the  mismatch  between  commitment  and 
payment  appropriations  which  has  emerged  since  1980  for  the  Structural 
Funds.

The  normal  burden  of  the  past,  which  arises  from  the  normal  delay  between 
is 
taking  commitments  and  meeting  the  payments  which  arise  from  them 
constantly  present, 
In 
but  need  not  pose  serious  budgetary  problems. 
research  policy,  for  example,  the  normal  burden  of  the  past  has  not  so  far 
created  problems,  because  the  commitments  entered  into  have  been  matched  by 
payments  at  the  appropriate  time  and  in  the  necessary  volume.

-   11 

-

For  the  three  Large  Structural  Funds  in  the  Community  (Regional  Fund, 
Social  Fund  and  EAGGF  Guidance)  the  building  up  of  unliquidated  commitments 
has  been  very  rapid,  mainly  due  to  two  factors. 
In  the  early  1980s  the 
implementation  of  projects  contracted  under  the  Fund  regulations  was  slow, 
thus  leading  to  limited  demands  for  payments  for  a  given  volume  of 
commitments.  In  the  later  years,  significant  improvements  in  implementation 
were  made,  not  the  least  due  to  a  change  in  the  regulations  producing  more 
efficiency.  This  increased  the  payment  requirements  from  new  commitments  at 
a  time  when  payment  claims  were  also  being  presented  in  respect  of  the 
older  projects. 
The  payment  appropriations  granted  by  the  Budgetary 
Authority  were  insufficient  to  meet  this  need.

In  table  3  below  the  actual  development  in  the  unliquidated  commitments  and 
the  actual  payment  appropriations  granted  are  compared  with  a  simulation 
showing  what  would  have  happend  if  the  more  efficient  payment  schedules  now 
operated  had  been  applied  throughout  the  period. 
These  are  the  schedules 
which  apply  in  1986. 
The  simulation  shows  the  importance  of  efficient 
payment  schedules  and  project  implementation  in  avoiding  an  excessive 
burden  of  the  past.

Table  3

Actual  and  simulated 
1980-1985

I 
I 

I 
I 1980

I
I 
|
|1.  Outstand. 
commitments! 
| 
I
I 
I 
I 
2.  Actual  pay-  | 
ment  appro-| 
| 
priations.  | 
| 
|3.  Efficient 
| 
payments*  |
| 
I
I 
1 
r
~ 
|4.  Difference  [
1
1 

~  

3.500

f 2.179 

2.284

-  105

payment

situation

in  the

three

Structural

I
|  1981
I
I
I
I  4.400
I
I
I
i  2.399
I
I
|  2 . 8 6 6  
I
I
|  -  467
I

H

| 
I
I
I
I 
I

1982

|  1983

5.700

|  7.300

2.779

I
| 
I
I
|  3.539
I
~l

I  -  760
1

|  3.321 

|  4.417

|  -1.096

_1 

r 

1984

I
| 
I
I
I
I  8.300
I
I
|  4.061
I
I
|  4.819
I
1
!  -  758 
1

|
|  1985 
I
I 
r
n  
I 
I
I  9.100  |
I 
I 
I 
I
|  4.623  I
I 
I 
I
I 
|  5.879  I
I
I 
T
H  
|  -1.256  I
I
I 

*  Simulated  payments  on  outstanding  commitments  if  payments  had  been  made 
according  to  the  payments'  schedule  for  1986.  In  this  case  the  burden  of 
the  past  would  have  been  4.700  MECU  in  the  end  of  1985  instead  of  9.100 
MECU.

The  budgetary  implication  of  this  situation  for  the  present  and  the  coming 
years  is  firstly  that  payment  appropriations  must  increase  rather  sharply 
in  order  for  the  Community 
to  regain  control  over  the  development  of  the 
burden  of  the  past. 
Secondly,  that  the  Commission  as  well  as  the  Member 
States  must  take  the  appropriate  administrative  measures  to  ensure  that 
implementation  of  the  projects  contracted  is  made  according  to  schedule  if 
budgetary  "surprises"  should  be  avoided  in  the  future.

  12 

-

-

D.  Summary

The  budgetary  background  for  the  establishment  of  the  multiannual  financial 
perspective  has  been  described  above  as  an  explicit  and  implicit  depletion 
of  own  resources  above  the  1.0  pet. 
level  years  before  the  decision  on  the 
VAT  for  the  Member  States  paying  the  highest  rate 
increase  to  1.4  pet. 
entered  into  force.

In  the  table  below  it  is  demonstrated  that  in  terms  of  simulated  VAT  rates 
for  the  years  1983-1985,  the  correction  of  budgetary  imbalances,  a  yearly 
depreciation  of  the  increase  in  agricultural  stocks,  and  efficient  payment 
on  outstanding  structural  commitments  would  have  implied  a  considerably 
higher  VAT  ceiling  than  1.0  pet  as  from  1983,  i.e. 
1.4  pet.  ceiling  entered  into  effect.  The  1.4  pet  was  actually  reached  in 
1985  if  the  true  costs  of  the  present  policy  had  been  fully  accounted  for.

four  years  before  the

— Summary  table.  Highest  VAT  rate  under  sound  financial  managamont

Highest  VAT  rates  %

1  Budget

I  Depreciation  of  agricul-
I  tural  stocks

I  Efficient  payments  for 
|  the  Structural  Funds

| 

1983

I 

I 

I 

1 , 0 0

0,13

0,09

|  Total  highest  VAT  rate*

I 

1 , 2 2

I 

I 

I 

I 

I 

1984

1,14

0,08

i ------------------------
1985 
I 

I

I 

j 

1,23 

0,08 

0,06

I 

0,09 

|

I

|

1,28

I 

1,40 

|

*  Simulated  VAT  rates  if  agricultural  stocks  were  fully  depreciated  and  if
,P„ T entS  on  commit">ents  for  Structural  funds  were  made  in  the

6f 
y63r  1983-1985.

-  13  -

Part  2  -  The  Financial  Perspective  1987-90  . . . . . . . . . . . . . .  

14

Page

A.  General  economic  framework  and  maximum  rate

for  non-compulsory  expenditure  . . . . . . . . . . . . . .  

B.  Resources  for  1987-90  within  1.4%  VAT  limit  _ _ _  

C.  Expenditure,  VAT  rate  and  margin  remaining  ...  

I.  Total  expenditure  . . . . . . . . . . . . . . . . . . . . .  

II.  VAT  rate  and  margin remaining  . . . . . . . . . . .  

III.  Expenditure  by  sector  . . . . . . . . . . . . . . . . .  

IV.  Cost  of  the  past  . . . . . . . . . . . . . . . . . . . . . .  

V.  Non-compulsory  expenditure  and

budget  discipline  . . . . . . . . . . . . . . . . . . . .  

14

15

16

16

17

18

23

24

-  14  -

A.  GENERAL  ECONOMIC  FRAMEWORK  AND  MAXIMUM  RATE  OF  INCREASE  FOR  NON-COMPULSORY 

EXPENDITURE 

!

Table  4  shows  the  expected  trend  in  GDP,  prices  and  the  maximum  rate  for  the 
period  1987-1990  based  on  the  latest  revised  forecast  of  growth  and  inflation 
produced  by  the  Commission  March  of  this  year.  It  is  important  to  reco­
gnize  that  these  forecasts  are more  unstable  than  usual  due  to  the  unpredic­
tability  of  the  dollar  rate  and of  oil  Prices.

The  GDP  forecast  affects  the  estimates of  own  resources.  A  1 %  divergence  in 
GDP  growth  could  in  1987  lead  to  a  difference  of  some  250  to  350 million  ECU 
in  the  amount  of  resources  available  within  the  1 . 4 %   VAT  limit.

Apart  from  the  indirect  effect  on own  resources  through  a  change  in  the  GDP 
forecast  the  dollar  rate  plays  a  significant  role  in  the  determination of 

"T eve rru^· froT7i" cu st omsrndut-re^^n^ '"10  pe t- variat iorr irr the - do tla i— thtfs-may-pro-—  
duce  a  change  of  400  Mio  ECU  in  revenue  from  custom  duties.  The  immediate 
fall  in  the  revenue  is  likely  to  be  offset  by  increased  imports,  but  only 
with  a  time-lag.

Table  4  :  General  economic  framework  and maximum  rate  of  increase  for

non-comulsory  expenditure  CEUR-12)  1987-1990.  Rate  of  increase 
in  %

1 
1 

1 
1 
j  A.  GDP 

Volume 

Prices 

Value 

j 
| 
j 
| 
j 
| 

J  B.  MAXIMUM  RATE 
[ 
r 
1 

(rounded) 

I 
I

I 
|
j

■  
|
j 
|
' 
|

'
i
j 
|

1986

1987

; 

1988

2  .7

5 . 0

7 . 8

\

2 . 6

3.4

6.1

! 

| 

j 

2 J

3.3

6 . 0

7.7

! 

(7.5)

1989

1 

1990

2 -7

3 ·2

..9,

(5.8)

i 

j 

! 

i 

2 ·7

3.2

5 ·9

(5.8)

j 

1
|

!

1 

! 

! 
1
1
i 
1

ir
1

■
-  15  -

B.  RESOURCES  FOR  1987-1990  WITHIN  1 . 4 %   VAT  LIMIT  (see  Table 5 )

1.  The  revenue  forecasts  reflect  :

-  the  foreseeable  growth  in  the  various  categories  of  revenue  ;

the  proportion  of  revenue  taken  up  for  the  correction  of 
budgetary  imbalances.

The  forecasts  for  1987  are  provisional  figures  based  on  revised  estimates 
of  economic  parameters.

Definitive  figures  will  be  drawn  up  at  the  next  meeting  of  the  Advisory 
Committee  on  Own  Resources  on  17  and  18  April  taking  into  account  the 
revised  economic  data  for  1987.

2.  Total  resources  available  within  the  1 , 4 %   VAT  limit  before  correction  of 

budgetary  imbalances

Total  resources  available  within  the  1 . 4 %   VAT  limit  are  expected  to 
increase  from  about  39  830  million  ECU  in  1987  to  47  080  million  ECU  in 
1990,  an  average  annual  increase  of  5 . 7 % .   As  average  GDP  growth  is  5 . 9 %  
per  year,  the  share  of  own  resources  in  GDP  will  drop.  As  mentioned  below, 
the  net  resources  available  to  the  Community  increase  by  only  5 . 4 % .   Were 
the  Community  to  stay  below  the  1 . 4 %   VAT  level  this  would  imply  a  signi­
ficant  reduction  in  the  Community  budget's  share  in  Community  GDP  over 
the  period  1987-1990.

•  Net  resources  available  after  correction  of  budgetary  imbalances

In  1987  about  2  400  million  ECU,  i.e.  6 %   of  resources,  will  have  to  be 
set  aside  for  the  correction  of  budgetary  imbalances.  The  correction 
formula  and  the  1 . 4 %   VAT  threshold are  linked  :  the  Conclusions  of  the 
Fontainebleau  European  Council  (26  June  1984)  stipulate  that  budgetary 
discipline,  the  Community's  financial  requirements  and  budgetary  correc­
tions  must  be  reexamined  before  the  1 . 4 %   VAT  limit  is  reached.  The  same 
Conclusions  state  that  expenditure  policy  is  ultimately  the  means  of 
resolving  the  question  of  budgetary  imbalances.

In  the  meantime,  the  cost  of correcting  budgetary  imbalances  is  estimated 
for  1988-1990  in  accordance  with  the  Fontainebleau  formula.

The  expenditure  equivalent  to  the  corrections  show  what  overall  appropria­
tions  would  have  to  be  entered  in  the  budget  to  resolve  the  problem  by 
means  of  expenditure  for  the  United  Kingdom  and  for  Germany.  The  gross 
amount  accounts  for  about  7 %  of  resources.

After  correction  of  budgetary  imbalances  net  resources  available  will 
increase  from  37  430  million  ECU  in  1987  to  about  43  900  million  ECU 
in  1990,  an  average  annual  rate  of  increase  of  5.4.

  16 

-

-

Table 5

Resources  available within  the  1.4 pet VAT  ceiling and correction  of 
budgetary  imbalances.

MECU

1987

1988

1989

1990

1. Resources  within  1.4 pet  of VAT

39  829

42  040

44  410

47  080

2. Correction  of  imbalances  :

a)  Net  amount

b)  Expenditure  equivalent

1  700

2  400

1  815

2  580

2  050

2  920

2  250

3  200

3. Net resources

4. Growth  rate

5. Growth  of GDP  in  value

37  429

39  460

41  490

43  880

6,3

6.1

5.4

6.0

5.1

5.9

5.8

5.9

C. EXPENDITURE,  VAT  RATES AND MARGIN REMAINING

I.  Total  expenditure

The  forecasts  of requirements  by  sector -  for  existing policies  and new 
ones  -  produce  the  following  overall  picture  :

Total  appropriations  for payments  required  should  increase  in  1987 by 
about  4.6%  (without  a  supplementary  and amending budget  in  1986  the  rate 
would  be  11%).  In  1988-90,  the  average  rate  of increase  should be  about 
7.3%,  or  4.0%  in  real  terms.

The  increase  in  appropriations  for commitments  should  be  5.0%  in  1987 
(without  a supplementary  and amending budget  in  1986  it would be  8.7%). 
The  average  rates  o f .increase  for.1988-90  should be  about 7.2%.

Table  6  :  Annual  rates  of 

increase  in 

non-compulsory

expenditure

appropriations  for 
(%)

payments  and

Total  expenditure 
(EUR-12)

Expenditure
(excluding enlargement)

Non-compulsory 

expenditure  (EUR-12)

1
! 
1
1
l
i 
1
j
1
I 
1
i
j 
1

1987 

1988

1989

4.6 

1.9 

9.0

8.7

8.2

8.3

1990 

-- fr...........

1
1 
1
1
1
! 
1
1
1
i 
1
1

4.8

5.0

9.6 

18.6

16.3

6.6 

1 
!

-   1?  -

II.  VAT  rate  and  margin  remaining

The  estimated  increase  in  expenditure  would  bring  the  highest  VAT  rate  to 
1.369%  in  1987.  This  would  leave  a  margin  of  about  590  million  ECU  for 
contingencies.  The  development  in  the  dollar/ECU  rate  recently  is  prone 
to  deplete  this  margin.

From  1988,  resources  available  within  the  1.4%  VAT  limit  will  no  longer 
be  sufficient.  Also  because  it  is  necessary  to  leave  a  margin  of  0.1-0.2% 
of  VAT  to  allow  for  factors  of  uncertainty  in  forecasts,  notably  with  regard 
to  EAGGF  Guarantee  expenditure,  the  effects  of  enlargement  and  the  forecasts 
of  resources  and  the  correction  of  budgetary  imbalances.

The  Heads  of  State  and  Government  at  Fontainebleau  recognised  that  "the 
maximum  rate  may  be  increased  to  1.6%  on  1  January  1988  ...".  The  figures 
given  indicate  that  this  judgement  was  right  :  an  increase  to  the  1 . 6 %  
will  be  needed  as  from  1  January  1988.

Table  7

Net  resources,  expenditure  and  VAT  rates

1987

1988

1989

1990

Net  resources,  MECU

37  429

39  460

41  490

43  880

Expenditure,  MECU

36  843

40  163

43  459

45  522

Remaining  margin,  MECU

Uni form  VAT  rate* %

Highest  VAT  rate  %

586

1,243

1,369

703

-  1  969

-  1  642

1,307

1,435

1,356

1,492

1,332

1,472

  18 

-

-

III.  E X P E N D I T U R E   BY  SECTOR

The  main  features  of  expenditure  between  1987  and  1990  will  be  as  follows  :

-  a  substantial  increase  in  appropriations  allocated  to  research;

-  a  reduction  in  the  automatic  repayments  to  "Spain  and  Portugal,  in  accordance 
with  the  schedule  set  out  in  the  Act  of  Accession.  The  decreasing  refund of 
part  of  VAT  (or  the  financial  contribution)  will  be  replaced  by  expenditure 
under  the  various  operational  policies,  notably  payments  from  the  EAGGF- 
Guarantee  Section,  and  by  non-compulsory  expenditure;

-  structural  expenditure  showing  a  cautious  increase  in  terms  of  commitments 
subject  to  the  gradual  stabilization  of  the  burden  of  the  past  in  payments.

A  provision  is  entered  to  cover  new  policies  and  actions.This  provision  is 
absolutely  essential  for  the  development  of  the  Community  because  none  of 
the  existing  policies  have  any  room  for  manoeuvre  beyond  objectives  already 
stated  by  Community  Institutions.  Any  new  and  desired  initiative  must  there­
fore  be  contained  in  this  provision.  For  1987,  the  provision  has  already  been 
subscribed  to  in  fairly  clear  terms.

1.  EAGGF-Guarantee  Section

The  period  1987-1990  should  see  the  gradual  realization  of  the  Commission's 
plans  for  the  future  of  agriculture  in  the  Community,  provided  the  p r o p o ­
sals  made  are  adopted  by  the  Council  in  1986.  The  figures  for  the  EAGGF- 
Guarantee  Section  correspond  to  the  principle  for  establishing  the  EAGG F 
guideline  as  stated  in  the  Commission's  communication  on  the  key  figures 
for  budget discipline.

Because  of  the  structural  imbalance  between  supply  and  demand  in  a  large 
number  of  sectors  of  agricultural  production,  intervention  stocks  far
exceed  acceptable  limits.

In  order  to  help  achieve  a  healthy  market  situation  in  various  sectors 
and  prevent  stocks  of  certain  products  from  building  up  any  further,  the 
Commission  intends  to  put  into  action  a  programme  for  the  disposal  of 
intervention  stocks.

The  programme  wilt  be  spread  over  1956,  193?  and  1988  and  will  aim  progress­
ively  to  reduce  stocks  to  a  reasonable  level.  The  cost  to  the  budget  will 
be  considerable  and  to  find  the  funds,  savings  will  have  to  be  marie  in 
order  to  overcome  budgetary  problems  in  1986  and  1987.

In  its  proposals  on  prices  and  related  measures  for  1986/87,  the  Commission 
set  out  the  conditions  in  which  a  preliminary  draft  budget  for  1987  could 
be  prepared  to  enable  the  policy  of  agricultural  market  reform  to  be  pursued 
within  the  constraints  of  budgetary  discipline.  These  conditions  depend 
almost  entirely  on  the  Council's  decisions  on  the  proposals  made.

The  further  decline  in  the  value  of  the  dollar  since  the  Commission  presented 
its  price  proposal  and  related  measures  in  February  1986  implies  a  further 
increase  in  EAGG F  expenditure.  For  1986  an  amount  of  1000  Mio  ECU  has  been 
set  aside  under  the  hypothesis  used  for  the  supplementary  budget  for  this  year,

-  19  -

if 

Even 
this  amount  is  not  likely  to  be  sufficient  and  also  for  1987  a  further  amount 
will  be  needed  with  unchanged  regulations.

the  Commission's  price  proposal  was  adopted  in  its  integrity, 

The  Commission  is  of  the  opinion  that  this  burden  cannot  be  put  on  farmers 
in  the  present  circumstances.  A  less  ambitious  de-stocking  program  is  not  a 
solution  either,  because  the  increase  in  storage  costs  and  the  depreciation 
in  market  value  due  to  storage  by  far  exceeds  the  immediate  financial  benefits 
of  less  de-stocking.  The  only  solution  is  a  greater  burden  sharing  between 
the  Community  and  Member  States  -  be  it  through  a  postponement  of  advances, 
a  greater  national  share  of  storage  costs  or  some  other  means.

Table 8:  Expenditure  1987-1990 -  Appropriations for  payments  (million  ECU)  j

j

1986

1987

1988

1 . EAGGF-Guarantee

22 012

23: 061

24  481

2. Structural  policies

6  201

6  593

7  625

3. D 

Research

w 1>

437,6

592

997

4.

Development  cooperation

1)

1  110,5

1  167

1  214

5. Other  policies

6. New  po l i ci es

7. Repayments  to  Member 

States

367,7

5

3  307

435

80

472

400

2  956

2  879

8. Administrative  expenditure

1  776,4

1  959

2  095

9. TOTAL

35  217,2

36  843

40  163

%  increase

4.6

9.0

1989 

j 
1
1
25  850  j 
1
8  694  j 
1
1  610  | 
l
1  252  ! 
|
492  | 
1
1
600  |
1
2  757  ! 
1 
1 
1
1
2  204  !
_______ L
1

43  459  |
1
------- L
1
| 
1

8.2 

1990 

]

27  436  j

8  941  [

1  996  j

1  300  j

521  J

800  j

2  207  j

2  321  |

45  522  |

4.8 

!

1)  Staff  and  current  administrative  expenditure  is  included  in  item  8.

2 .  Structural  policies

The  outlook  for  this  sector,  in  terms  of  appropriations  for  commitments,  is
as  follows  :
a)  a  significant  increase  in  EAGGF-Guidance  expenditure.  On  12  December  1985 
the  Council  raised  the  indicative  amount  for  1985-89  to  6  350  million  ECU

b)  a  modest  increase  in  expenditure  for  the  Regional  Fund  for  1987  (4.5 /) 

increasing  to  5 %   in  1988  and  6 %   in  the  following  years.  While  the. major 
increase  due  to  enlargement  was  made  in  1986  for  the  Regional  Fund  the 
enlargement  effect  is  significant  for  the  Social  Fund  in  1987  and  1988 
where  commitments  increase  by  9 %  and  6 % ,   then  tapering  off  to  5 % 
increa s e .

■
  20  

-

-

c)  the  implementation  of  the  integrated  Mediterranean  programmes.

Firstly,  an  annual  sum  of  270  million  ECU  is  envisaged  between  1987 
and  1990  under  Chapter  55,  as  part  of  the  total  appropriation  of 
1  600  Million  ECU  over  seven  years.

Secondly,  2  500  million  ECU  is  to  be  allocated  to  the  IMPs  over  seven 
years  by  the  structural  funds,  according  to  the  criteria  for  each  fund.

According  to  the  conclusions  of  the  European  Council  at  Fontainebleau, 
"the  financial  resources  allocated  to  aid  from  the  Funds,  having  regard 
to  the  IMPs,  will  be  significantly  increased  in  real  terms  within  the 
limits  of  financing  possibilities."

Further,  according  to  Regulation  2088/85,  Art.  11:  "Increases  in  real, 
terms  accruing  to  the  Funds  during  the  period  concerned  shall  help  to 
finance  the  IMPs,  but  without  adversely  affecting  transfers  from  the 
Funds  to  other  Less  prosperous  and  priority  regions".

The  Commission  will  take  these  conclusions  and  decisions  into  account 
in  the  preparation  of  its  proposals  on  the  reinforcement  of  the 
cohesion  to  conformity  with  the  mandate  of  the  Single  Act.

(d)  a  certain  increase"in  expenditure  on  transport  infrastructures  with  a 

Community  interest.

The  increase  in  appro p r i a t i o n s   for  payments  is  the  result  of  the  cost  of 
the  past  and  also  of  the  payments  against  new  commitments.  It  should  be 
emphas i z e d   that  the  schedules  themselves  are  subject  to  change.
With  regard  to  the  forecasts  for  1987,  for  instance,  an  u n d e r e s t i m a t i o n   in 
the  1986  supplementary  budget  would  a u t o m a t i c a l l y   mean  an  increase  in 
payment  requirements  in  1987.

3 .  Research

This  is  regarded  as  n  prio r i t y   area,  in  view  of  the  importance  of  research 
for  the  competitiveness  of  the  European  economy,  and  hence  for  employment.
For  1987-90  an  increase  in  the  share  of  research  in  the  budget  to  6%  in 
1989-90  is  envisaged.

4.  Development  c o o p e r a t i on

The  outlay  on  development  c o o p e ration  will  be  m a i n t a i n e d   in  leal  terms.
Some  50%  of  the -appropriations  will  continue  to  be  devoted  to  food  aid.
Major  developments  are  s c h e d u l e d   in  the  M e d i t e r r a n e a n   jirotocols  .  the 
entry  into  force  of  the  third  financial  protocols  with  the  Southern  and 
Eastern  Moditerranean  countries,  the  neces s a r y   s p e e d - u p   in  the  i m p l e m e n t a t i o n  
of  the  third  financial  protocol  with  Turkey  (payments  on  commitments  a l r e a d y  
ent e r e d   into).

It  s h o u l d   be  n o t e d   that  the  t h i r d   e n l a r g e m e n t   lias  c r e a t e d   n o   o b l i g a t i  
in  the  f i e l d   of  d e v e l o p m e n t   c o o p e r a t i o n .

5.  Other  policies

Fisheries  and  the  sea

Expenditure  in  this  sector  will  increase  substantially  as  a  result  of  enlarge­
ment.  The  accession  of  Spain  and  Portugal  means  a  doubling  of  the  number  of 
fishermen  and  an  increase  of  75%  in  fishing  capacity.

With  regard  to  other  policies  (information  and· cultural- activities,  environment 
and  consumer  protection,  energy,  innovation,  industry  and  the  internal  market), 
very  little  increase  in  real  terms  is  generally  envisaged.  New  developments 
in  these  important  areas  of  expenditure  will  be  financed  by  the  general 
provision  for  new  policies.

Table  9 

Expenditure  1987-90  -  Appropriations  for commitments

1985

1986

1987

1988

1989

1990

mi 11 ion ECU

1 . EAGGF  Guarantee

2. S t r u c t u r a l 
policies

3. Research  ^
4. Development  ^  
cooperation

5. Other  policies
6. New  policies  *
(and  reserve)

7. Repayments  to
Member  States

8. Admi ni strati ve
expendi ture

9

TOTAL

| 

%  increase

22012.00 23061.00 24481,00 25850,00 27436,00

7051,80

7482.00

8285,00

9129,00

9591.00

473.30

804,00

1749,00

2394,00

2534.00

1203,20

1257,00

1294.00

1342.00

1390,00

544.50

549.00

514,00

530,00

604,00

5.00

120.00

600,00

800,00

1000,00

3307.10

2956,00

2879.00

2757,00

2207,00

1776,40

1959,00

2095,00

2204,00

2321,00

36373,30 38188,00 41897,00 45006,00 47083,00

5.0

9.7

7.4

4.6

,______

'Staff  and  current  administrative  expenditure  is  included  in  item 8.

New  pol i ci es

A  relatively  modest  provision  of  120  million  ECU  in  appropriations  for  commitments 
gradually  rising  to  1000  Mio  ECU  is  earmarked  for  launching  or  boosting  new  acti­
vities  not  included  in  the  estimates  by  sector,  such'as  (1987)
“  new  structural  measures  in  Fisheries
-  additional  support  for  integrated  operations
-  cooperation  between  universities.
In  relative  terms  this  provision  constitutes  only  0.3%  in  1987  and 2.1%  in  1990 
of  total  expenditure.

  22 

-

-

r

7.  Repayments  to  Member  states

(Flat-rate  refund  of  10%  of  customs  duties  and  agricultural  revenue, 
repayments  to  Spain  and  Portugal,  and  repayment  -  in  annual  instalments  of 
250  million  ECU  -  of  the  advance  granted  by  the  Member  States  in  1984).

Under  Article  187  and  Article  374  of  the  Act  of  Accession,  Spain  and 
Portugal  will  be  entitled  to  a  refund,  between  1986  and  1991,  of  a 
declining  proportion  of  their  VAT  payments/financial  contribution  (87% 
in  1986,  70%  in  1987,  55%  in  1988,  40%  in  1989,  25%  in  1990  and  5%  in 
1991).  This  means  that  the  total  refunds  to  the  Member  States  will  drop 
by  about  33%  between  1986  and  1990.  As  stated  earlier,  an  important  part 
of  this  fall  in  compulsory  expenditure  corresponds  to  the  integration  of 
the  two  member  States  in  non-compuIsory  expenditure  policy.

Total  repayments  represent  b e t w e e n a b o u t   8%  (1987)  and  5 % ( 1 9 9 0 )   of 
revenue.  With  the  addition  of  the  gross  equivalent  of  the  correction 
of  budgetary  imbalances  made  on  the  resources  side,  it  is  found  that 
some  15  to  13%  of  resources  are  refunded  to  Member  States  in  one  form 
or  another.

: 

8. 

Administrative  expenditure  (all  institutions)

It  is  assumed  that  full  cover  is  provided  in  the  budget  for  the  authorized 
establishment  plan. 
other  factors,  such  as  rights  under  the  Staff  Regulations,  salary  adjustments 
and  new  posts.

Allowance  is  made  for  enlargement  and  a  series  of 

From  1989  onwards  the  rate  of  increase  is  between  the  general  rise  in 
prices  and  the  maximum  rate,  and  no  indication  is  given  of  new  costs 
for  buildings  and  no  assessment  made  for  expenditure  on  pensions  for 
all  the  institutions  together.

-  23  -

IV.  COST  OF  THE  PAST

The  table  shows  that,  as  regards  differentiated  payment  appropriations, 
the  financial  impact  of  the  cost  of  the  past  -  i.e.  new  appropriations 
for  payments  needed  to  cover  commitments  from  earlier  years  -  will 
increase  in  1987  (IMPs,  research,  Social  Fund)  and  will  then  level  out. 
This  development  wilt  be  analyzed  in  further  depth  in  the  report  on 
the  situation  in  the  Structural  Funds.

This  means  that  the  proportion  of  funds  available  for  payments  against 
new  commitments  will  stabilize  from  1987  onwards  -  provided  that  the 
supplementary  budget  for  1986  is  adopted;  otherwise  the  burden  of  the 
past  will  remain  a  problem  beyond  the  time-horizon  adopted  here.

Table  10  Cost  of  the  past  -  Overall  impact

New  appropriations  for  payments  needed  to  cover  commitments  from 
earlier  financial  years

(milLion  ECU)

1.  Cost  of  the  past 

(rounded)

2.  Payment  approps 
(di fferent i atefi)

3.  Total  approps 

for  payments 
(rounded)

4.  Relative  burden

(a) 

1 : 2  

(b) 

1 : 3  

(%)

(%)

1986

1987

1988

1989

1990

4  070

4  700

5  350

6  250

6  500 

I
i
[

7  700

8  500

10  300

12  200

13  100

35  200

36  800

40  200

43  500

45  500 

i

52.9

11.6

55.3

12.8

51 .9 

13.3

51 .2 

14.4

49.6

14.3

-  24  -

V .  NO N - C O M P U L S O R Y   EX P E N D I T U R E   AND  BU D G E T A R Y   D I S C IPL IN E

The  table  below  provides  an  initial  provisional  estimate  of  the  growth 
in  non-compulsory  expenditure  during  the  reference  period.  This  develop­
ment  shows  that  non-compulsory  expenditure  for  payments  as  well  as  com­
mitments  increase  at  fairly  high  rates,  expeciaLly  for  1988,  where  a 
steep  increase  in  the  payments  of  the  burden-of  the  past  combine  with 
necessary  increases  in  payments  as  well  as  commitments  for  research  and 
new  policies.  At  the  higher  level  of  non-compulsory  expenditure  as  from 
1988  the  rates  of  increase  begin  to  decline  -  progressively  approaching 
the  maximum  rate  of  increase.

Table 11 :  Annual  rates  of  increase  in  non-compulsory  expenditure  (%)

1985

1986

1987

1988

1989

1990

1·  Appropriations  for 

payments

2.. Appropriations  for 

commi tments

+ 9.6

+ 18 .6

+ 16.3

+  6.6

+ 10,2

+ 19.5

+ 11-6

+ 6.4

3.  Maximum  rate

7-7

(7.5)

(5,8)

(5,8)

-  25  -

When  establishing  its  reference  framework  for  1986,  the  Council  used  the  guidel 
calculated  by  the  Commission  for  the  EAGGF  Guarantee  Section  and  applied  the 
maximum  rate  under  Article  203  EEC  to  non-compulsory  expenditure.  Compulsory 
expenditure,  other  than  that  under  the  EAGGF  Guarantee  Section,  was  to  be 
determined  during  the  budgetary  procedure.

It  is  not  without  interest  to  compare  the  theoretical  results  of  a  similar 
procedure  for  1987-90  and  the  figures  in  the  1987-90  perspective.

If  it  is  assumed  that  the  Council  will  adopt  the  Commission's  forecasts  for  the 
EAGGF  Guarantee  Section  and  if  other  compulsory  expenditure  is  excluded,  the 
comparison  is  restricted  to  the  growth  in  non-compulsory  expenditure.  The 
Council  would  be  applying  the  maximum  rate  for  the  following  year  to  the  base 
for  1986,  1987  and  so  on.  The  result  -  and  the  difference  in  relation  to  the 
figures  in  the  perspective  - is  demonstrated  in  table  12. 
The  appropriations 
for  non-compulsory  expenditure  available  with  strict  application  of  the  maximum 
rate  would  be  distinctly  inadequate  in  1987-89.

t h e  F i na ne i a l 

J 

Table  12  :  Payment  appropriations  lackinq  compared  to 

! 
! 
i- - - - - - :_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ...  .
1 
j

Perspective  if  the  maximum  rate  is  applied

* 

1987 

1988 

.- - - - - - - - - - - - - - - - - - - - - _J
1
• 
| 
With  supplementary 
j 
]
! 
budget  1986 
i 
1
Without  supplementary  ] 
| 
! 
J 
budget  1986 
!_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ l

1 
j 
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1 
1 
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1 
1 
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-  166 

-  1585 

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-  2017 

1
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1

1989 

1
j 
1
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1
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_______________ L

3310 

2474 

Mio  ECU  J

1990 

-  2720 

-  3605 

j

j

;

It  is  supposed  that  amounts  not  obtained  by  supplementary  budget  1986  will 
have  to  be  added  to  expenditure  in  1987.