The change in the co-funding rate, if it gets the green light from Brussels, will have an immediate impact on the budget for rural development projects that are supported by LEADER companies.
Almost €428m was earmarked for rural development projects in the current round of funding. The vast majority of the total spend is delivered by local LEADER companies. Half of the €428m was to come from Brussels, with an equal amount coming from the Irish Government.
But Ireland's application for the lower co-funding rate will result in a 35pc reduction in the total budget. This equates to a cut of almost €113m and brings the new budget for rural development to €315m.
The cuts would also have implications for the amount the Department would have to commit to schemes in Axis I of CAP (which covers direct payments to farmers) such as ERS, FIS and Installation Aid.
Funding for these schemes would fall from €484m to €397m, a reduction of €87m. These cuts are not expected to hit payments to farmers since the new lower budget would still be sufficient to meet existing outgoings.
However, farmer groups have suggested that the reduced budgets would kill off any possibility of the schemes being reopened. The new co-financing arrangements for CAP were agreed by the Commission in December as a result of the poor uptake of EU schemes by member states such as Hungary that could not afford the 50/50 co-funding.
The Commission said the 85/15 financing arrangement was specifically for member states that were "experiencing difficulties with financial stability".
ICSA rural development chairman John Barron has expressed concern over the Department's plan.
He said the move would result in less being spent on rural development programmes such as LEADER, lead to the winding down of the ERS and confirm the closure of Installation Aid.
Mr Barron said the proposal also undermined Ireland's efforts to maintain its share of the overall EU rural development budget, at a time when the share-out of these funds was being negotiated.
"Again, the Government has shown that it is heavy on austerity but light on job creation and economic stimulus," Mr Barron said.
ICMSA president, John Comer, said the proposal would cause deep anxiety within the farming community as there was a very conspicuous lack of detail about the schemes that would have to be cut.
Mr Comer said farmers were at least entitled to some degree of the certainty regarding future funding for "essential" farm programmes.
Meanwhile, a LEADER company official said the full cost of the proposal for the rural economy would have to take account of the multiplier effect of matching funding that LEADER projects attract.
He pointed out that the matching funding which private businesses and community groups pumped into initiatives accounted for between 10pc and 50pc of the overall investment. This meant the total cost to the rural economy of going from 50pc to 15pc co-funding would be far higher than €113m, he said.