Farm Ireland

Monday 24 October 2016

Irish exchequer will face a steep post Brexit bill from Brussels

Alan Matthews

Published 14/09/2016 | 02:30

Prime Minister Margaret Thatcher. PA Wire
Prime Minister Margaret Thatcher. PA Wire

The initial focus here on the fallout from Brexit has for obvious reasons been on trade, the common travel area and the border with Northern Ireland.

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However, Brexit will also have implications for our public finances because the UK is a substantial net contributor to the EU budget. After Germany it is the member state that makes the largest net contribution, even when the UK rebate is taken into account.

This rebate was negotiated with Prime Minister Thatcher in 1984 when the UK was the third poorest member of the European Community but was on course to become the largest net contributor. This scenario arose because the EU budget was dominated by agricultural spending and the UK has a relatively small agricultural sector. The formula for determining how much each member state paid into the EU budget was also relatively unfavourable to the UK.

The rebate in broad terms amounts to 66pc of the UK's net contribution in the previous year, although the formula has been adjusted following the accession of the Central and East European countries to the Union.

Even with the rebate, the UK makes a net contribution of around €10.3 billion annually (the average for the period 2012-2015). This compares to total EU expenditure in the remaining member states of €138 billion in 2015.

If the other member states want to maintain the same level of EU expenditure post-Brexit, then this amount would have to be made up through additional contributions from these countries.

If it were distributed proportionately across all member states, each country would have to increase its contribution to the EU budget by around 7.5%. In Ireland's case, this would mean an additional contribution of around €138 million.

However, because of the peculiar way in which the UK rebate is financed, which preferentially favours four member states - Germany, Austria, Netherlands and Sweden - these countries would be called upon to pay proportionately more towards making up the gap left by the UK net contribution in the event of a Brexit.

The impact of Brexit can be simulated by applying some calculations to the impact of a theoretical Brexit for the years 2014 and 2015.

The results show that the four countries mentioned earlier would have to increase their payments to the EU budget by between 10-15pc if total EU expenditure in the EU-27 were to remain unchanged.

The increases for all other countries would be around half this, probably between 5-8pc. The Irish figure would be an extra payment to the EU budget of €102 billion, or an increase of just under 6pc.

However, Germany would have to increase its net contribution to the EU budget from €17.4 billion to €21.1 billion, Netherlands from €6.0 billion to €6.8 billion and Austria from €1.1 to €1.5 billion.

Whether these countries, with increasingly Eurosceptic electorates, would be willing to shoulder this additional financial burden may be questioned.

Thus, the missing €10.5 billion due to Brexit adds another dimension when the Commission comes to make its proposal by the end of next year on the ceilings for the overall EU budget, including the CAP, for the period after 2020.

Already, the EU is facing new challenges in terms of security and migration which will require additional resources to address. In the complex balancing act between increasing demands on the EU budget and fewer resources to finance these, it seems highly unlikely that the CAP budget will emerge unscathed.

In my view, the only question is how big a reduction there will be in the CAP budget after 2020.

The departure of the UK from the EU by that date only makes this scenario more likely.

Alan Matthews is Professor Emeritus of European Agricultural Policy at Trinity College Dublin

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