Q&A

Thu, Feb 7, 2013, 00:00

What is the EU budget?

As with individual countries, the European Union has its own budget which outlines how it will fund itself and where it plans to spend money. While annual budgets are adopted each year by the European Union, the overall framework is laid down in a seven-year budget plan known as the multi-annual financial framework (MFF). The last MFF, governing the period 2007- 2013, was agreed in December 2005. The hope is that the next MFF, covering the period 2014-2020 will be agreed today and tomorrow in Brussels. A meeting in November failed to reach agreement.

How much is the EU budget?

The current MFF stands at just below €1 trillion , equating to around €140 billion per year. This is equivalent to about 1 per cent of Europe's GDP - the total output of goods and services produced by the 27 member countries.

In the summer of 2011 the European Commission presented its proposal for the new MFF, proposing a ceiling of €1.025 billion. While this represents an increase in nominal terms, it represents a drop in real terms. The commission's proposal has already been whittled down. In November, before the budget talks ended without agreement, the European Council had proposed a budget of €973 billion. Note that the new MFF also includes money for two new member states, Bulgaria and Romania, which joined in 2007, and Croatia , which joins next year.

How is the income raised?

Each country contributes to the EU budget, while around 1 per cent of income is also raised from other sources such as regulatory fines or interests on late payments. Member states fund the EU in three main ways - through Gross National Income (GNI) payments, a calculation of its contribution based on the country's national income, VAT-based income, based on the Vat collected in a country, and customs duties collected on behalf of the EU (known as "traditional own resource" income) While there has been a move to increase the non-GNI revenue, GNI still represents the largest proportion of income received by the European Union.

Where does the money go? Under the last MFF for 2007 and 2013, around 42 per cent was allocated to the Common Agricultural Policy, fisheries and rural development, 36 per cent was allocated to structural and cohesion funds; 9 per cent went to competitiveness measures, including research and innovation, just under 6 per cent on foreign policy and 5.8 per cent on the administrative expenses involved in running all the European institutions.

What is going to change this time around?

There has been a long-term trend towards reducing budget allocation for the Common Agricultural Policy, and a move towards more investment in growth-type sectors, such as research and innovation, the portfolio of Irish commissioner Maire Geoghegan-Quinn. In 1985, CAP represented more than 70 per cent of the budget. This has been gradually decreasing. The plan for the next seven years envisages around 37.5 per cent of the EU budget being spent on agriculture, 32 per cent on cohesion funds, while administration costs will rise to just over 6 per cent of the overall EU budget, something Britain in particular is against. Investment in research and development is earmarked for €80 billion, representing over 7 per cent of the budget, and a big increase on the €50 million allocated in the last seven-year period.

How will all this affect Ireland?

For many years Ireland received much more from the EU than it contributed, making it a net recipient of EU funds. This peaked in the early 1990s when the investment from EU structural funds was at its height. Today it is much more balanced. While different methodologies are used to calculate countries' contributions and receipts, we are still a net beneficiary and are likely to remain so for the duration of the next MFF. If Ireland's economic growth of the last decade had continued Ireland would probably have moved into a net contributor position.

Ireland is likely to do relatively well under the new MFF. Income from the Common Agricultural Policy still represents our largest receipt from Europe, representing around €1.6 billion annually. Thanks to pressure from countries such as France, the cuts to the agricultural budget are set to be less than anticipated, and there could be some uplift from negotiations on rural development funds.

Although worth much less than CAP funds, Ireland is also a net recipient in terms of funding for research and innovation, with Irish universities and researchers increasingly dependent on EU funding as pressure on national budgets persists.

Though the focus of structural funds has moved eastwards, Ireland received around €900 million of structural funds between 2007 and 2013. It is likely to receive a similar amount in the next seven-year period.

On a more practical level, if the MFF is agreed this week, it will fall to Ireland to progress the agreement and negotiate discussions with the European Parliament, because of its status as current president of the European Council.

What is the rebate?

Under a deal secured by Margaret Thatcher, Britain is entitled to be reimbursed two-thirds of the difference between its contribution to the EU budget (excluding traditional own resources) and the amount it receives back from the budget. The cost of the UK rebate is divided between member countries. Subsequently, the Netherlands, Sweden, Germany and Austria negotiated their own rebate arrangements, including having their contribution to the UK rebate capped at 25 per cent.