£670m EU bill to push contributions above receipts from funds for first time

A dramatic rise of 31 per cent in the Republic's budgetary payments to the EU this year will mean a bill to the State officially estimated at £670 million, The Irish Times has learned. It is set to push the Republic's EU contributions above the State's total receipts from both European Social and Regional Funds for the first time.

Last year receipts from the two funds, the main EU sources of training and infrastructural funding, amounted to £665 million.

With structural funding certain to decline sharply from the year 2000 because of loss of Objective One eligiblity for maximum grant aid, the Republic's position as a net beneficiary of EU cash will be increasingly dependent on its success in maintaining its share of Common Agricultural Policy money.

In the last two years CAP has ploughed some £1.5 billion each year into Irish farming.

Payments to Brussels are the other, neglected, side of the structural funds debate. In truth, the Republic is a victim of its own economic success and is already well on the glide path to the structural funds transitional "soft landing" promised by the Commission for the 2000-2006 budget period.

And if Germany manages to force a review of the whole payments system, the glide path may get even steeper. The increase in payments from Dublin to the EU, revealed in figures obtained by The Irish Times from the Department of Finance under the Freedom of Information Act, reflects an unrepresentatively large year-onyear increase in 1998 because of special budgetary circumstances in the Union in 1997. Yet, in the longer term perspective, the figures show an increase in annual Irish contributions to what are known as the EU's "Own Resources" of 136 per cent in the 10-year 1989-1998 period. During that time Irish prices have risen by only some 21 per cent and the economy has grown by only 75 per cent.

In the same period Ireland's net receipts from the EU rose from 4 per cent of GDP to a high of 6.5 per cent in 1991, then declined to an estimated 3.5 per cent this year.

And that trend of increasing contributions and declining net receipts is certain to continue for two reasons.

Primarily, because the calculation of individual member states' Own Resources contribution to the EU budget is based on a formula that in recent years has given added weight to a country's GNP in order to correct perceived unfairnesses in the system.

While other components of the Republic's Own Resources have risen significantly over the period, with VAT receipts doubling to £270 million the "GNP Resource" has risen from £14 million to £230 million in 1998.

With Irish growth still roaring ahead, this is likely to continue to grow fast.

The other threat to the Republic comes from the determination of some member states, primarily Germany, to open up the issue in the Agenda 2000 discussions on the next budget of their "excessive" net contributions to the budget.

While Germany pays into the EU budget a share that roughly corresponds to its GDP share of the EU economy, it draws down far less proportionately. The result is that Bonn is a substantial net contributor, representing two-thirds of all net payments by member states to the budget. Yet countries of a similar per capita wealth like France or Denmark are either net recipients or only marginal contributors - the reason is simple, they are larger beneficiaries of the CAP.

Former British prime minister Mrs Margaret Thatcher successfully negotiated a budget rebate for the British some years ago on the basis of the same argument. In a report issued over the summer, the EU's Court of Auditors warned that if Germany and the others who might claim that their net contribution is unfair applied the British formula for a rebate, some £10 billion in extra contributions would have to be found by the other member states, predominantly the poorer ones.

The new German government's strategy on the issue is not yet clear - the last government had sought a change in the system to put a cap on net contributions as a share of GDP. A British-type rebate is another option, as is the most likely compromise of simply increasing Germany's receipts from structural and CAP funding.

Whatever the approach, if they are successful, the result will be either a further increase in Irish contributions, or a smaller pot from which to draw funds.