Ireland’s annual contribution to the EU budget is likely to rise to over €3 billion after the UK leaves the bloc, more than 50 per cent above the current level.
The Republic paid just over €2 billion into EU coffers last year, but this is due to rise to €2.7 billion this year and nearly €2.9 billion next year as a result of stronger-than-expected economic growth.
The European Commission is also proposing to raise the contributions it gets from member states for its next seven-year budget, which starts in 2021, in part to make up for the shortfall left from the UK's departure next year.
The Department of Finance expects this to add between €250 million and €400 million on to Ireland's annual bill, pushing it over €3 billion for the first time.
The commission’s initial budgetary proposals for the 2021-2027 period, published last week, would see the annual budget raised to €1.27 trillion in current prices. The commitments would translate into 1.11 per cent of the gross national income (GNI) of the 27 EU states, roughly a 10 per cent increase on the last budget round.
However, the budget is framed around cuts to farming subsidies, which may be resisted by certain states, potentially forcing the EU into extracting bigger national contributions.
In an effort to cut costs and promote other policies, farmers will see aid shrink in the 2021-2027 period to €365 billion, down 5 per cent from the current Common Agriculture Policy (CAP) budget, the commission said.
Several "new" EU states and France, by far the largest beneficiary of CAP, have already signalled their opposition to the proposed cutbacks in farm spending. They, like all the 27 – the UK is not party to the current budgetary discussions as it will leave the bloc next year – can each veto a final deal.
The UK’s exit is expected to leave a €94 billion hole in the EU’s seven-year budget, while beefed up spending on defence, border controls and the digital economy is expected to push the bloc further into the red without bigger contributions.
The Irish Government has already indicated a willingness to raise its contribution subject to certain reforms.
The Department of Finance’s chief economist, John McCarthy, said recently that Ireland’s contribution could rise by an additional €400 million a year as a result of the Brexit hole left in the bloc’s budget, albeit this was still subject to negotiation.
He also said Ireland’s EU contribution was being unduly impacted by the actions of multinationals, which tend to exaggerate official measures of national income. This is because GNI strips out multinational profit flows, unlike gross domestic product (GDP), the more conventional measure of economic growth.
Ireland is expected to have to pay a €2.7 billion contribution this year, which is 35 per cent higher than than last year and more than double what the State paid five years ago, reflecting the rapid recovery in the economy.
In 2014, Ireland became a net contributor to the EU budget for the first time since it joined the bloc in 1973, with the State paying in more than it received in grants and payments. The majority of Irish receipts, approximately two-thirds, come in the form of direct payments to farmers.