Opinion No 9/99 on a proposal for a Council regulation (EC) on budgetary discipline
Date: 1999-10-28
Institutions: European Court of Auditors
Subjects: agricultural expenditure, budget, budgetary discipline (EU), common agricultural policy, non-government bill

23.11.1999

EN

Official Journal of the European Communities

C 334/1

I

(Information)

COURT OF AUDITORS

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

OPINION No 9/99

(presented pursuant to Article 279 of the EC Treaty)

(1999/C 334/01)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

HAS ADOPTED THE FOLLOWING OPINION:

Having regard to the Treaty establishing the European Commu-
nity and in particular Article 279 thereof,

THE AGRICULTURAL GUIDELINE

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(cid:146) 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(cid:146)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,

(1) COM (1999) 364 final.

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 agri-
cultural 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 calcula-
tion could comprise the total for the latest known real expendi-
ture 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 appropria-
tions, 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 agri-
culture that are available for accession under the financial per-
spective. 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.

C 334/2

EN

Official Journal of the European Communities

23.11.1999

LIMITS TO AGRICULTURAL EXPENDITURE

4. The objective of budgetary discipline is to provide the frame-
work for compliance with the financial perspective. However, sev-
eral factors and a certain lack of precision in the proposed regula-
tion conflict with that objective.

Multiplicity of ceilings

5. Article 5(3) of the proposed regulation institutes specific lim-
its 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 appro-
priations 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 (1)
and creating a global ceiling for the agricultural section of the lat-
ter.

In contrast with Decision 94/729/EC on budgetary discipline,
6.
which specifically ties heading 1 of the financial perspective to the
agricultural guideline, the proposed regulation thus creates a mul-
tiplicity 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 (2), there is still a risk that the guideline
may be exceeded, because the exact nature of accession expendi-
ture has still not been identified and the amount has not yet been
quantified by the Commission.

Classification of rural development appropriations

In the 1999 budget, where rural development measures of a
9.
similar kind were entered in subsection B2 (structural expendi-
ture), 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 (4).

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 Euro-
pean Parliament(cid:146)s powers regarding the establishment of the bud-
get, 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 (5)
and not a decision of Parliament (6), is required for transfers relat-
ing 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 imple-
mented 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 budget-
ary 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.

7. The rural development expenditure is for multiannual mea-
sures that form part of rural development plans or of specific
programmes under the Structural Funds (3). 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 com-
mitment appropriations must cover the total cost of the multian-
nual obligations.

Budgetary principles

8.
In the draft 2000 budget, however, this expenditure is covered
by non-differentiated appropriations, entered in title 4 of subsec-
tion B1, covering only the annual tranches of the proposed opera-
tions. 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.

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

(cid:151) because of the compulsory nature of EAGGF-Guarantee expen-
diture (7), all agricultural expenditure incurred by paying agen-
cies under specific regulations must give rise to the entry of
the corresponding appropriations in the general budget;

(1) Of the order of EUR 4 000 million for the financial year 2000.
(2) OJ C 401, 22.12.1998.
(3) 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.

(4) The amount of additional appropriations for commitment would be
around EUR 3 000 million and the overrun in relation to heading 1b
would be around EUR 2 000 million.

(5) Article 104 of the Financial Regulation regarding the procedure for

budgetary transfers.

(6) Article 26(5)(b) of the Financial Regulation.
(7) Treaty, Article 272; Financial Regulation, Articles 1, 4 and 22.

23.11.1999

EN

Official Journal of the European Communities

C 334/3

(cid:151) the principle of annuality (1) requires the said expenditure to

Obligatory national prefinancing

be charged to the financial year to which it relates;

(cid:151) the principle of specification (2) means that every appropria-
tion must be earmarked for a specific purpose, in order to
avoid any confusion between the various appropriations dur-
ing 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:

(cid:151) agricultural expenditure that has been legally incurred but
exceeds the amount available under heading 1a of the finan-
cial perspective gives rise to a reduction of the appropriations
or the payments;

(cid:151) the charging of the expenditure in question is deferred to the

following financial year;

(cid:151) reducing only direct aid is tantamount to making the latter
support the overruns on other budget headings or chapters.

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 Commis-
sion for EAGGF-Guarantee and therefore rules out any prefinanc-
ing by Member States other than the technical prefinancing pro-
vided for in Article 5(2) of Regulation (EC) No 1258/1999.

18. To the extent that this type of prefinancing obligation is tan-
tamount 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 Com-
munity expenditure.

Monetary reserve

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 per-
manent and cumulative.

19. Article 8 of the proposed regulation provides for the pro-
gressive reduction and, as from 2003, the abolition of the mon-
etary reserve that is intended to cover euro/dollar exchange dif-
ferences 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) Treaty, Articles 268, 271, 272; Financial Regulation, Articles 1, 6, 7.
(2) Treaty, Article 271; Financial Regulation, Articles 5, 19 and 26.