The main principle is that EU funding has to be utilised only when sharing resources looks sensible to the Union's member countries. The EU's yearly budget totals to around '130 billion. This is approximately 1% of the economic wealth yielded by the member countries every year.
The budget determines income and expenditure for the year, lists all the actions that are to be financed and also fixes total amount of money and staff obtainable for each. The budget also determines the amount of each payment and its authorisation. A ceiling on the expenditure limit is accorded by the member states' governments and parliaments. The limitation at present is set at 1.24% of the Union's gross national income.
The budget in the year 2008 has apportioned 45% of its total expenditure to make the EU economy more aggressive and lively. This year the EU budget has plans to narrow the space between the rich and the poor member states and regions. Agriculture is apportioned with 32% of the budget which is also a major area of expenditure. Rural development and environment takes 11% and the total cost for the administrative to run the EU works up to 6% of the total expenditure.
2. An upper limit for expenditure which is agreed by the member states' governments and parliaments. ...
The budget of the EU is dependent on 3 constraints:
1. The treaties, which influence the EU budget not to be in deficit which means that the total income has to cover the total expenditure.
2. An upper limit for expenditure which is agreed by the member states' governments and parliaments. This is the personal resources cap. This cap forms 1.24% of the Union's gross national income (GNI) which is to be used for payments. This amounts roughly to EUR 293 per EU citizen on average.
3. A fiscal structure established by the European Parliament, the Council of Ministers and the European Commission, would check the development of the EU budget set by expenditure category for a period of time. The present fiscal structure runs from 2007 to 2013.
The EU has its individual resources to fund its spending. By law, these resources are of the Union. Member states who accumulate them in lieu of the EU and shift them to the EU budget.
The 3 kinds of EU's own resources are:
1. Traditional own resources (TOR) which is made up of duties billed for imports from a non-EU state which approximated to around 15% of total revenue, in the year 2007.
2. Value added tax (VAT) is a consistent percentage rate which is applicable on each member state's harmonised VAT revenue forms yet another resource. This was around 15% of total revenue, for the year 2007.
The gross national income (GNI) which is 0.73% and is applicable to the GNI of each member state. Even though it is a complementary item it is the prime source of revenue and amounted to around 70% of total revenue for the year 2007(http://www.eu2008.si/en/ About_the_EU /Budget/ index. html accessed on 4th June 2009).
: Source: Commission of the European Communities
Other sources of revenue are taxes paid by EU