Ireland low down EU table of State aids to industry

Ireland has a far lower level of state aid to industry than either Germany or France, according to European Commission figures…

Ireland has a far lower level of state aid to industry than either Germany or France, according to European Commission figures.

The competition reports from the DGIV part of the Commission have established that the German level of state subsidies is the highest in the EU.

The figures undermine arguments from the Germans and others at European level that Ireland offers an undue amount in state aids to business.

The European Commission figures show that Ireland spent 0.8 per cent of Gross Domestic Product on state aid, compared with 1.9 per cent in Germany and 1.1 per cent in France, over the latest available period, 1994 to 1996.

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This translates to 312 ecu per person employed in Ireland, 978 ecu per person in Germany and 574 ecu in France.

Ireland is also the lowest of the three in terms of a percentage of total government expenditure.

According to Prof Brendan Walsh of UCD, the Germans have such a high level of state aid because of the huge amounts of money they are pouring into bankrupt industries in the former East Germany, as well as high levels of support to shipbuilding and coalmining.

He added that, while many people believe we are unusual in the amount of state aids we apply, the Germans and Italians have higher levels applying in different sectors and in different ways. "The Germans are not on a strong wicket when it comes to attacking our tax rate."

The aid figures include grants, tax exemptions, equity participating, soft loans, tax deferrals and guarantees.

Grants and tax exemptions are, according to the Commission, by far the most frequently used form of aid in the European Commission. And direct grants are used more often than tax exemptions.

Because grants are easier to introduce than changes in taxation law, governments generally have a preference for employing this type of aid.

Irish aid is made up of 89 per cent grants and 11 per guarantees, while the Germans have a preference for tax exemptions at 15 per cent and soft loans at 22 per cent as well as grants, guarantees and tax deferrals.

The French also make liberal use of tax exemptions at 38 per cent and guarantees at 10 per cent, with grants coming in at 44 per cent.

Observers point out that any difference in direct taxation would be alleged to provide competitive advantage in terms of attracting investment.

The authorities here do admit that the IFSC regime represents a state aid and needs to be authorised by Commission decision. But general taxation that is particularly low or even non-existent is not a state aid. That means the 12.5 per cent proposal for 2003 is not a derogation from anything and it is only the transition to it that has needed consent from the Commission.

Insiders also point out that at times up to 40 per cent of Germany has been "regionally disadvantaged" and thus eligible for state support to industry. On top of that, it is understood that in Cardiff last year, Germany attempted to use "subsidiarity" as a method of avoiding scrutiny of state aids.