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Saturday 10 December 2016

Ireland to avoid EU €280m 'leprechaun economics' penalty

Published 23/09/2016 | 02:30

Fine Gael MEP Brian Hayes: says Ireland will not be landed with €280m penalty because GDP will not be basis of calculations. Photo: Steve Humphreys
Fine Gael MEP Brian Hayes: says Ireland will not be landed with €280m penalty because GDP will not be basis of calculations. Photo: Steve Humphreys

Ireland will escape being hit with an extra €280m in EU budget contributions due to the 26pc spike in the country's wealth which was dubbed "leprechaun economics".

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The huge surge in Gross Domestic Product (GDP) caused by multinational companies' accounting changes was revealed in late July. What was expected to be a 7.8pc increase in GDP for the year 2015, was suddenly shown as a 26pc increase.

Finance Minister Michael Noonan said the change could mean having to pay €380m extra to the EU coffers - but a number of technical issues could reduce this to a final bill of €280m.

However, Dublin Fine Gael MEP Brian Hayes yesterday said he had established that it was most unlikely that Ireland will be whacked with an extra €280m bill. Mr Hayes said he had been told by the EU Budget Commissioner, Kristalina Georgieva of Bulgaria, that the GDP will not be the basis of Ireland's budgetary calculation.

Instead another measure, Gross National Income (GNI), will be used. While GDP measures a country's total economic output, GNI effectively excludes money generated by the multinationals which is ultimately sent abroad. Mr Hayes said that, because of the dominance of the multinationals in Ireland, GDP is frequently much higher than GNI.

"The speculation over the summer that we would see an increase in our EU budget contribution by €280m next year, due to the once-off spike in our GDP growth rate for 2015 of 26pc, is now discredited," Mr Hayes told the Irish Independent.

The Fine Gael MEP said it would be next month before the Commission could give Ireland the final bill.

The CSO in Dublin has to send the final GNI figure to the EU, where it has to be validated by the EU's statistical service, Eurostat, which is based in Luxembourg.

Ireland has received a total of €44bn in EU payments since joining in 1973, mainly in farm, regional and social grants.

Prosperity

But the country's increasing relative prosperity has meant we have become net contributors to the EU budget since 2014.

All member states' contributions to the EU budget are a mix of customs duties, a portion of VAT income, and a proportion of GNI.

In the complex calculation, these are weighed against other countries' data, and averaged over a number of years.

"The final decision on our GNI figure will be communicated in October and there will be no negotiation after that," Mr Hayes said.

The former Fine Gael junior finance minister said the real issue for Ireland's future EU contributions will be Britain leaving the bloc and leaving a huge budgetary hole.

This will change the relative prosperity rating of all member states and definitely put a bigger contribution burden on Ireland.

Mr Hayes said Ireland should not unduly fear the demands for more EU contributions as it would increase the country's influence around the negotiating table.

"With more contribution comes more political clout in devising the budget and setting the rules," he said.

When the news of the spike in GDP emerged last July, it caused US economist Paul Krugman to tweet: "Leprechaun economics: Ireland reports 26 per cent growth! But it doesn't make sense. Why are these in GDP?"

Officials said the figures appeared to have been affected by a number of one-off factors, including activity in the aircraft leasing sector and restructuring by multinationals involving the movement of patents.

Irish Independent

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