Irish exchequer will face a steep post Brexit bill from Brussels
Published 14/09/2016 | 02:30
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.
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.