EU says Ireland cannot negotiate a discount on budget bill

There is no room for flexibility on the Republic’s contribution to the European Union’s budget despite it being heavily influenced by last week’s upwardly revised gross domestic product figures, the EU has confirmed.

An additional €280 million is expected to be demanded of the State next year, Minister for Finance Michael Noonan said on Wednesday, after the Central Statistics Office revised GDP growth for 2015 from 7.8 per cent to 26 per cent. Mr Noonan said the revised figures had been “distorted” by tax-inversion deals by multinationals and the Republic’s booming aircraft leasing sector, and would “not have a direct bearing on employment and wealth creation for Irish citizens”.

However, two prominent Irish economists have said the increase in the Republic’s contribution to the EU budget is “significantly offset” by the additional corporation tax the State will generate. The EU’s budget is financed by contributions from member states. The largest source comes from gross national income (GNI), made up of GDP plus income paid into the State by other states.

No discount

In response to queries from

The Irish Times

in relation to whether it would be possible to negotiate a lesser budget contribution on the basis the figures do not reflect real economic activity, a spokeswoman for the EU said “no”.

However, it’s understood that while there is no ready-made model for the situation, there is precedent for new rules to ensure flexibility for states when unexpected factors come into play.

The spokeswoman said the 2017 budget was based on a GNI forecast, which is “constantly updated over the years and member states’ contributions can be adjusted accordingly”. A final decision will be made in the autumn.

KBC economist Austin Hughes said it was a good sign for the economy that an increased contribution was demanded of the State. “There is a significant offset in terms of the fiscal position and what it means for tax and spending adjustments elsewhere,” he said.

“There is likely to be corporation tax revenue associated with these shifts in the scale of the economy because of the influence of these companies.

Positive sign

“In a broad sense, one would prefer to be in an economy that was paying an increased contribution to the EU budget because it is reflective of improving economic conditions generally. It does suggest there will be more volatility in future however.”

Mr Hughes added the “significant uncertainty” in relation to GDP will mean “an extra element of volatility” in EU contribution. “Because the economy is performing well, the general working assumption by economists would be that the contribution will continue to edge higher,” he said.

PwC head of tax Joe Tynan said it was “a good news story”. “We have to think about the additional €2.6 billion Ireland generated in corporate tax last year,” he said.

“I understand that the overall economy did not grown by 26 per cent last year, but a very specific measure of it – GDP – did grow. A lot of people are coming at this the wrong way.”