FUNDING SOURCES AND THEIR FORMATION MECHANISM IN THE EU DRAFT BUDGET

FUNDING SOURCES AND THEIR FORMATION MECHANISM IN THE EU DRAFT BUDGET PH.D.C. FLORIN-CORNEL POPOVICI PHD CANDIDATE AT DOCTORAL SCHOOL, FIELD OF FINANCE, TIMISOARA WEST UNIVERSITY - FACULTY OF ECONOMY AND BUSINESS ADMINISTRATION, TIMISOARA, ROMANIA, EMAIL: FLORINCORNELPOPOVICI@YAHOO.COM PH.D.C. LAURA NASTA PHD CANDIDATE AT DOCTORAL SCHOOL, FIELD OF ECONOMICS, ACADEMY OF ECONOMIC STUDIES, BUCHAREST, ROMANIA, E-MAIL: ALSENASTA@GMAIL.COM, Abstract: Budgetary sources, even in the European Union (EU), are made up of ordinary and extraordinary sources. Each source has its specificity with a more or less significant in absolute impact on the total sum of budget. In this context, U.E. income sources include contributions required from Member States, the import duties on products from outside the European Community and the fines imposed on enterprises which do not comply with the European financial, fiscal and environmental laws. Keywords: Budgetary principles, the European Union, funding sources macroeconomic indicators, budgetary implementation Clasificare JEL: H50, H61, H69. Introduction and context of the study According to the statute of organization and functioning of the European Union, for all its relevant institutions to function properly it is necessary to establish a financial support able to cover their needs for the organization, operation, management and administration of each function assumed. For this reason, were taken in consideration the need, opportunity and especially legality of the identification of financial sources that, in compliance with the opinions of all member countries, can constitute the basic foundation of developing a financial plan - budget, by respecting the rules, but especially principles, that are universally recognized and taken into account by all participants. Sources and Funding Mechanism for Training Budget U.E. In the philosophy of budgetary architecture and within the European Community, the budgetary principles commonly used by its member states, with the appropriate adjustments are taken over and used by the European Community. Without a detailed description and an appropriate argumentation we shall point out these principles underpinning the transposition in the budgetary architecture of the functions of public finance with all its sub features, respectively that of allocation of financial resources with the sub feature of establishment, control and sometimes intervention in the economy of the European Community: Principle of unity and budget accuracy, Annularity Principle, Equilibrium Principle, Unit of Account Principle, Universality principle, Specificity Principle, Correct Financial Management Principle, Principle of Transparency. In addition to the budgetary principles mentioned above, we consider it necessary to mention the Reality Principle, which actually governs the whole philosophy of the budget drafting process and is mandatory to be taken into account because it requires exclusively the use of sub-principles (methods - automatic one, increase or decrease, direct assessment, cost-benefit or cost- effectiveness) which confers stability, functionality and proper finality to the budget. Sources and formation mechanism of Community financial resources Budgetary sources, even in the European Union (EU), are made up of ordinary and extraordinary sources. Each source has its specificity with a more or less significant in absolute impact on the total sum of budget. In this context, U.E. income sources include contributions required from Member States, the import duties on products from outside the European Community and the fines imposed on enterprises which do not comply with the European financial, fiscal and environmental laws. 146

Thus, the European Union has at disposal its "own resources" for funding, which legally belong to the Union. Member States only collect them on behalf of and for the European Union, given that the collected resources are subsequently transferred to the Community budget. Functioning of U.E. is based on the budgetary balance and the maximum value of own resources is maintained at 1.24% of the total gross national income (GNI) of EU states. We appreciate that for a better understanding of this indicator is necessary to recall synthetically its manner of formation, e.g. the legal structure as outlined in the European Union accepted sense. GNI = gross domestic product (at market prices) - primary incomes paid by the non-resident units + primary incomes received from the rest of the world by resident units Where: primary incomes received by resident institutional units are derived from the compensations paid to employees and taxes on production and imports minus the subsidies, property revenues (the receivable minus the payable), gross operating surplus and gross mixed income. Based on SEC95 methodology (guideline on statistical reporting of balance sheet assets and liabilities drawn up in 1995), the GNI is conceptually identical to the gross national product calculated based on SEC79 (guideline on statistical reporting of balance sheet assets and liabilities drawn up in 1979). GNI can be expressed in absolute value, lower or higher than GDP, its changes being influenced by the of primary incomes received or transferred to or from the "rest of the world". U.E. own resources i are divided in three distinct categories, as follows: 1. Traditional own resource, including the Common Customs Tariff duties applicable on the value of goods imported from countries outside the EU and levies for sugar production within the EU. These amounts are collected by Member States and paid directly into the EU budget. From the revenues cashed in for EU budget in the form of traditional own resources, Member States retain a share of 25% with the title of expenses incurred in the collection of budget revenues, while the remaining 75% are financing the European budget; 2. Own resource based on the value added tax (VAT), by using a uniform rate of 0.30%, is applied to the harmonized VAT evaluation base of each Member State. The harmonized VAT evaluation base is limited to 50% of gross national income (GNI) per country. The determination of the harmonized evaluation base starts from the unique average share determined by the European Commission (used in the course of a financial year) at EU level and includes the VAT receipts derived from the supply of goods / services meant for consumption that are subject to the standard rate in each Member State by applying this share to the adjusted revenues of Member States, namely the value of VAT receipts corrected by excluding interests and penalty, it results the value of "taxable VAT incomes". Taxable VAT is converted into an unique evaluation base, non-taxable, using the effective VAT standard rate of each Member State (if one or several of VAT coefficients are applied in a Member State, the base of VAT resources base is calculated by dividing the total net collected revenues by the weighted average rate of VAT ii ). After determining the taxable base value, the rate provided for in the Regulation implementing the decision on own resources is applied to calculate the actual contribution, i.e. 0.30% the amount resulted representing each country's effort / financial contribution to the budget U.E. on such income; 3. Own resource based on gross national income (GNI), which presents itself as a flat percentage rate - 1.24% - applied to the GNI of each Member State; 4. Other incomes arising, inter alia, from: taxes paid by civil servants of EU administrative apparatus, fines imposed on companies by the Union and interests and penalties charged for the delays. Tabel no.1. U.E. Budget revenues between 2012-2015 iii - euro - Financial Year Budget Revenues Traditional own resources VAT Resource GNI Resource Other Revenues Surplus from the previous financial year 2015 141.214.040.563 16.825.900.000 11,92 18.264.479.250 12,93 104.548.163.756 74,04 1.575.497.557 1,12 - - 2014 140.242.700.000 16.310.700.000 11,63 17.882.179.650 12,75 101.931.985.148 72,68 3.112.428.277 2,22 1.005.406.925 0,72 2013 144.450.831.942 14.822.700.000 10,26 14.680.052.250 10,16 110.822.836.159 76,72 3.067.967.007 2,12 1.023.276.526 0,71 2012 129.106.104.630 19.294.600.000 14,94 14.498.917.425 11,23 92.239.900.053 71,45 1.575.719.138 1,22 1.496.968.014 1,16 147

(fig. nr. 1) Evolution of EU budget revenue in the period 2012-2015 As shown in the graphic representation, during 2013-2015, the value of annual budget revenues was substantially the same, its share in total budget revenues amount being given by the own resources' value based on the gross national income (71.45% and 76.72% ). Dynamically, by considering each budgetary source, it appears that are registered fluctuations, although insignificant, at the level of traditional own resources, in other words their volume was diminished in the period 2013-2015 with approximately 3 percentage points compared to the budget year of 2012; this decline was however offset in full by the GNI resource, which have been growing steadily in this period, respectively by 2.59% (in relative amounts) and with more than 12.209 billion Euros (in absolute ) in 2015, compared to 2012. It can also be noted a slight increase of the VAT resource in the period 2014-2015, compared to 2012. This value variation within budgetary revenues is graphically represented as follows: (fig. nr. 2) 148

(fig. nr. 3) (fig. nr. 4) (fig. nr. 5) At the same time, we draw the conclusion from the interpretation of the data in the table above mentioned that practically U.E. budget relies only on about 25% direct revenues, e.g. made of economic transactions carried out within the Union (TOR and VAT resource), and the fixed quota applied to gross national incomes of Member States represents over 75%, without denying that member countries' revenues are the result of applying the common European rules on their economies. It is noted that, during this period, the budgetary draft of European Community was directed primarily toward maintaining the 75% share resulting from application of the percentage of 1.24% on the GNI of E.U. Member States. 149

Not incidentally, we have mentioned previously that a slight VAT increase was observed, this tax being one indirectly supported by the final consumer, representing a constant concern for maintaining on the line the tax rates established by the national states, and it is very hard to change it without the agreement of authorized bodies within the Community. Conclusions: The orientation towards imposing globally on the gross national incomes of the countries that are component of European Community may also represent a greater freedom given to member countries to fix the taxes' level so that through a broader tax base the level of GNI can be achieved without excessive fiscal burden for EU taxpayers. Given that not all the EU member states have a similar philosophy in budgetary architecture, we appreciate that in these conditions the budgetary resources scheduled can influence positively or negatively the amount provided in the European Community budget with the consequences that derive from the budget execution on the use thereof. i (Council Decision dated 7 June 2007 on the system of own resources of the European Communities (2007/436 / EC, Euratom), art. 2) ii (COUNCIL REGULATION (EEC, EURATOM) no. 1553/89 of 29 May 1989) iii http://ec.europa.eu/budget/biblio/documents/2016/2016_en.cfm REFERENCES: [1] European Commission - The European Union Budget in Brief, Luxembourg: Publications Office of the European Union, 2010 ISBN 978-92-79-14456-1; [2] European Commission - Communication from the Commission - Europe 2020: An European Strategy for Smart, Sustainable and Inclusive Growth, Brussels, 3.3.2010; [3] (EEC, EURATOM) REGULATION NO. 1553/89 of 29 May 1989 [4]General Directorate of Macroeconomic Analysis and Financial Policies - http://discutii.mfinante.ro/static/10/mfp/trezorerie/sisteme_imp_ue_directe_indir_contributii.pdf; [5]Dobran, M. M. - Economic Dictionary, 3rd edition, revised and enlarged Eurostampa Publisher, Timisoara, 2003; [6] Popovici, Dumitru - Public Finances, Mirton Press, Timisoara, 2007, ISBN 978-973-52-0151-7 [7] Lazarus, T. D., Inceu A., Zai P. - Local Lending as a Financing Source - Transylvanian Review of Administrative Sciences 2 (14) 2005 [8] Banciu, Teodor Dumitru - European Tax Policies, Salgo Publisher, Sibiu, 2011, ISBN 978-606-8015-45-3; [9] Treaty establishing the European Economic Community; [10] Avram Alexandru, Avram Costin Daniel, Avram Veronel - Research and development expenditures between discretionary costs and source for economic growth, Romanian Journal of Economics, 39 (2 (48)), 49-66 [11] Avram Alexandru, Avram Veronel, Hetes-Gavra Roxana - Impact of cyclical evolution on budget balance - Romania's case, Annals of the University of Craiova, Economic Sciences Series 1 (42) 150