All the European Union's revenue and expenditure is entered in the Community budget on the basis of annual forecasts.
The budget is governed by several principles, including:
- unity: all the revenue and expenditure is brought together in a single document;
- annuality: budget operations relate to a given budget year;
- equilibrium: expenditure must not exceed revenue.
The European Commission is responsible for submitting an annual preliminary draft budget to the Council and the European Parliament, which share budgetary authority. The Council adopts and communicates its position on the draft budget to the European Parliament before 1 October of the year preceding implementation of the budget. If the Parliament approves the Council's position, the budget is considered to have been adopted. If, however, the European Parliament adopts amendments to the Council's position, the Conciliation Committee is convened in order to find an agreement. The President of Parliament has the role of declaring final adoption of the budget.
In order to stabilise the annual budgets, they are the subject of multiannual interinstitutional agreements between Parliament, the Council and the Commission on budgetary discipline. The multiannual financial framework governs the allocation of expenditure and seeks to ensure a suitable level of funding and support the Union's priorities. It is adopted by the Council by unanimous vote after having been approved by the European Parliament. The Lisbon Treaty institutionalises this practice which was introduced in 1988.