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The EU budget is an important tool that puts EU policies into practice. It finances actions that Member States cannot fund on their own or which they can fund more economically by pooling their resources.
The EU budget is adopted through a democratic procedure: it is prepared by the European Commission (the EU’s executive body) and is then discussed and agreed by the Council of the EU (representing EU Member States, including Hungary) and by the European Parliament (where 22 democratically elected Hungarian representatives sit).
Once adopted, the budget is then managed either jointly by EU Member States and the Commission, or directly by the Commission.
In practice, 80 % of the EU budget is managed by national or regional governments. Through grants, loans and other forms of financing, the EU budget provides financial support to hundreds of thousands of beneficiaries such as students, scientists, NGOs, SMEs, towns, regions and many others.
The EU budget is largely financed by ‘own resources’ which are based on three kinds of sources:
This system has been unanimously decided by EU Member States for a seven-year period, and ratified by all national parliaments. It is to provide a reliable and sufficient level of revenue for the EU budget, while at the same time taking into account the Member States’ ability to pay. Each Member State thus contributes in line with its wealth.
The other sources of revenue to the EU budget include taxes on EU staff salaries, fines on companies for breaching competition laws and bank interests, etc. There is no direct EU tax. EU countries remain in control of their taxes.
Some 94 % of EU money is spent on the various EU policies, and most of it goes back to Member States. In many cases the EU budget supports large and complex projects. One of them is the European Partnership Action against Cancer, where collective European effort helps to prevent the disease and find a cure for it.
Approximately 6 % of the EU budget is spent on the functioning of EU institutions. This is used to pay for the salaries and pensions of EU employees, translation and interpretation, security, buildings and IT systems etc. This expenditure is necessary in order to allow the EU to work.
There are around 55 000 EU civil servants and other employees serving 508 million Europeans and countless people in need around the world. By comparison, in Hungary, the National Tax and Customs Administration (Nemzeti Adó- és Vámhivatal) alone employs over 23 000 officials, while the overall number of officials working for the central government administration and units supervised by them is 70 650, as of October 2013.
Furthermore, in order to adapt to the harsh economic situation in Europe, the EU institutions are also cutting costs: the Commission’s wide-ranging staff reform is expected to save HUF 2 400 billion (EUR 8 billion) by 2020, reducing its staff by 5 %, while at the same time increasing its working hours.
The chart below provides an overview of how much the EU invested in each of its Member States in 2012, and shows the contribution of European funding to each country’s wealth. In Hungary, EU funding represents 4.5 % of the country’s wealth (Gross National Income) – this is the highest proportion among EU members.
The Commission has put into place robust internal control measures in order to ensure that funds are spent efficiently and effectively.
As 80 % of the EU budget is managed by national or regional governments, Member States also play an important role in ensuring that rules are observed, and in detecting and addressing irregularities and fraud.
Additionally, the European Court of Auditors reviews the EU accounts every year. For several years the Court has confirmed that the EU accounts are properly kept, but also points out errors in procedures (e.g. accounting errors by national programme participants or claims for non-eligible costs). Errors do not mean that EU money is lost, wasted or affected by fraud. A large part of the money spent in error is recovered.
In addition, the European Parliament approves how the Commission has spent the budget following the end of every financial year.
If you want to see for yourself who has received EU funding, the Financial Transparency System will show you who received payments from the Commission.
Although the EU budget is adopted every year, it must be established within the limits of the Multiannual Financial Framework (MFF). The MFF is an expenditure plan setting the maximum annual amounts which the EU can spend in different fields of activities over a given period (normally seven years). It therefore shapes the EU’s political priorities for seven years.
For the 2014-20 funding period, the EU wants to meet the targets of the Europe 2020 growth strategy, focusing on what Europe needs in order to overcome the economic and financial crisis and concentrating on areas where it can make a genuine difference. Key elements of the 2014-20 MFF include:
In 2012, Hungary’s public expenditure amounted to around HUF 14 082 billion (EUR 47 billion) – that is less than the HUF 40 750 billion (EUR 136 billion) EU budget for the same year. However, it represented 52 % of the country’s GNI, whereas the EU budget for the 27 Member States at that time was around 1 % of the Union’s GNI.
The EU and national budgets serve different, yet complementary purposes. The EU budget targets areas where EU money can generate added value. For example, a project of such magnitude as the European satellite navigation system Galileo could not be financed by a single Member State alone.
Unlike Hungary’s budget – or any other national budget – the EU budget does not fund defence expenditure or social protection, but is mostly investment spending. For example, as the development of an effective transport network is essential to a successful economy, the EU has contributed EUR 168 million to the modernisation of the Hungarian section of the Szentgotthárd-Szombathely-Sopron railway line, thus improving accessibility of the Western Transdanubia region as well as connections between Hungary and its European neighbours. The EU budget also finances trans-European connections that otherwise would not exist, and helps to reduce costs by pooling resources.
Hungary is one of those EU members which receive more from the EU budget than they contribute, and it will remain in this position throughout the next financial period (2014-20). Bear also in mind that this net balance does not accurately reflect the many benefits of EU membership. Many of them, such as peace, political stability, security and freedom to live, work, study and travel anywhere in the Union cannot be measured. In addition, European investments are intended to benefit the EU as a whole, and European funding in one country can benefit other EU members as well.
In addition, thanks to the internal market which makes it easier for companies to do business with counterparts in European countries, Hungarian exports reached a record high in 2012 – 71 % of this came from exports within the EU. The country is also slowly catching up with the European average in terms of development.
Operating budgetary balance: The difference between what a country receives from and pays into the EU budget. There are many possible methods of calculating budgetary balances. In its Financial report, the Commission uses a method based on the same principles as the calculation of the correction of budgetary imbalances granted to the United Kingdom (the UK correction). It is, however, important to point out that constructing estimates of budgetary balances is merely an accounting exercise of the purely financial costs and benefits that each Member State derives from the Union and it gives no indication of many of the other benefits gained from EU policies such as those relating to the internal market and economic integration, not to mention political stability and security.
Hungary is among the Member States which receive the largest amounts of money from EU regional policy. Regional policy aims to reduce the economic, social and territorial disparities between Europe’s regions and countries. For example, regional funds are improving traffic flows around Budapest’s Ring Road. They are financing programmes which help disadvantaged children to catch up at school. Regional funds are also helping Mórahalom to create a cleaner environment with a new heating system which uses geothermal energy; they also support Hungary in retaining its researchers thanks to long-term research projects.
The second largest area of expenditure is agriculture and rural development. EU agricultural policy supports farmers and promotes good food, but it also looks after the environment and stimulates rural economies. Thanks to EU support, agricultural income has increased by 65 % between 2004, when Hungary joined the EU, and 2012. The construction of an open-air market place in Üllés is just one example of this EU funding in action: the initiative encouraged the inhabitants to buy local food and provided an additional source of income for local farmers.
That is why it represents a large proportion of the EU budget. It is also less costly for EU countries as a whole than implementing 28 different national policies.
The Common Agricultural Policy has undergone a major reform, whereby its share of the EU budget has fallen from 70 % in 1985 to around 40 % today, and is set to continue falling to 33 % in 2020. A new reform which comes into force in 2014 further strengthens European agricultural competitiveness, making it more environmentally-friendly.
All values in national currencies have been converted using exchange rates from October 2013.
A railway investment package in Közép-Dunántúl (Central Transdanubia) has shown major improvement on the Budapest-Székesfehérvár line. The route is of great importance since it is not only a European transit route, but also a busy line during the tourist season. Benefits of the investment include a reduction in travel times, improved safety, as well as less pollution and noise. The project is also expected to increase tourism and to help to develop the regional economy. (EU funding: HUF 129 billion – EUR 439 328)
The M43 motorway connecting Szeged to the Romanian border in the east is undergoing a major road construction project. The benefits include reduced levels of transit traffic, less noise and emissions and improved safety. Given the proximity to neighbouring countries, this will benefit not only local residents, but also businesses and international trade. (EU funding: HUF 60 255 million – EUR 201.1 million)
Hungary’s sugar factory in Kaposvár now operates a fermenter built from EU-funds. The fermenter produces biogas throughout the year, not just only during the sugar beet harvest, since it uses treacle and bran for biogas production as well. This way, the sugar factory is operated entirely by biogas during harvest season, instead of the previously used gas furnaces. (EU funding: HUF 540 million – 1.84 million EUR)
The EU-funded Semmelweis Bridge Project is stemming the flow of researchers out of Hungary by creating an innovative working group, including young scientists, international collaborators and industry partners, which will carry out long-term basic cardiovascular research. Some 200 participants are involved in the project. (EU funding: HUF 689.2 million – EUR 2.3 million)
The Korányi project (named after a Hungarian physician) is the biggest infrastructure investment in the history of the Semmelweis University since the establishment of its clinics in the 1870s. A new medical care facility has been built – with a diagnostic centre and a helicopter landing pad. (EU funding: HUF 8.11 billion HUF – EUR 27.6 million)
Hungarian scientists are part of the ‘Human Brain Project’, which is developing the most detailed model of the brain yet using supercomputing technologies. The results will ultimately help the development of new treatments for brain diseases and revolutionary new computing technologies. (EU funding: HUF 16.2 billion – EUR 54 million)
The EU invests over HUF 53 billion (EUR 180 million) per year in cancer research? A major share of this budget is used to encourage key players from across Europe and beyond to join forces in collaborative research projects, to find new ways to fight cancer and help patients.
The project entitled Developing Diagnostic Assessments in the Centre for Research on Learning and Instruction, University of Szeged aims to lay the foundation in the first phase, and in the second phase implement a system in Hungary that provides personalised feedback while it directly supports learning and teaching and satisfies the students’ individual needs. (EU funding: HUF 1.44 billion – EUR 4.9 million)
The Tanoda programme bridges the gap in education levels between the marginalised and the majority of children in Hungary and ensures proper schooling services for both Roma and other disadvantaged children. 5-8th grade and secondary students across 66 schools benefited from the programme. (EU funding: HUF 2.2 billion – EUR 7.5 million)
Some 4 361 Hungarian students studied or worked abroad thanks to the Erasmus exchange programme in 2011-12. They received an average monthly grant of HUF112 361 EUR 375 from the European Commission towards the extra costs of living abroad.
Start Non-profit Ltd. carries out a programme that aims at integrating people with different working abilities to the labour market. It implements trainings and provides special support for employees participating in the project. (EU funding: HUF 75 million –255 423 EUR)
The Enterprise Europe Network helps companies to start trading abroad, find partners and access EU funding. Thanks to the Network’s help, Hungarian textile manufacturer Eurotex found a partner in Russia producing nanosilver which helps keeping cloth fresh for longer. It now produces jumpers lined with Russian-made nanosilver. Financed by the EU, the network’s budget is HUF 95.9 billion – EUR 320 million for 2007-2013.
In Mórahalom, a system using geothermal energy was built to heat the town hall, the library, a primary school, a kindergarten and a local hotel, saving around 80 % of the energy costs. The success of the project encouraged the municipality to continue developing renewable energy sources and energy efficiency measures. (HUF 300 million – EU funding: EUR 1 million)
The Szamos-Kraszna flood-level reducing reservoir project will improve landscape management around the reservoir as the retained water will benefit nature and be used for landscape irrigation. The Szamos-Kraszna reservoir will also keep the tidal waves beneath the standard flood levels. (EU funding: HUF 17 billion – EUR 52.7 million)
Hungary received HUF 6.7 billion (EUR 22.5 million) to help it recover from the severe floods that struck the country in spring 2010. During the floods, Hungary also benefited from the Civil Protection Mechanism, the European disaster-response system through which several EU countries sent millions of sandbags for temporary protection.
All values in national currencies have been converted using exchange rates from October 2013.