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EU's €750bn aid plan comes with 'tax sting in the tail' for Ireland

Bulk of grants could be paid in 2021 and 2022 aiding recovery

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New plans: European Commission President Ursula von der Leyen arrives for a plenary session of the European Parliament in Brussels yesterday. Photo: KENZO TRIBOUILLARD/AFP via Getty Images

New plans: European Commission President Ursula von der Leyen arrives for a plenary session of the European Parliament in Brussels yesterday. Photo: KENZO TRIBOUILLARD/AFP via Getty Images

New plans: European Commission President Ursula von der Leyen arrives for a plenary session of the European Parliament in Brussels yesterday. Photo: KENZO TRIBOUILLARD/AFP via Getty Images

Ireland is set to get €2bn in EU coronavirus recovery grants under new plans - but funds could come with tougher rules on company tax which have long been resisted by Dublin.

A huge chunk of the EU grants - perhaps as much as half - can be frontloaded in the first two years of the aid programme starting in 2021.

Two-thirds of Commission President Ursula von der Leyen's €750bn plan to help stave off post-virus recession will be made up of grants with the balance coming in low-interest loans. The compromise plan is an attempt to break the deadlock between Mediterranean countries worst hit by the virus and countries in the north who fear having to pay other states' debts.

It follows an intervention 10 days ago by French President Emmanuel Macron and German Chancellor Angela Merkel. The proposal was welcomed by countries worst hit by the virus - Spain, Italy and France - as well as by Germany.

But the so-called 'frugal four' - Austria, Denmark, the Netherlands and Sweden - just shifted their objection to the principle of grants and insisted that loans were the better approach.

However, all sides agreed to make the plans the basis of more talks and - coronavirus permitting - there is a plan to hold up to three summits of EU leaders meeting in person from late June onward in Brussels.

Taoiseach Leo Varadkar welcomed the proposals and also noted the plans to frontload the aid in the years 2021-2022.

"This proposal for a substantial, frontloaded recovery instrument comes on top of the three safety nets of up to €540bn already agreed by EU leaders to support citizens, businesses, and countries," he said, adding he hoped there can be early agreement.

Mr Varadkar signalled Ireland will be supporting other states to ensure the rescue plan, dubbed 'Next Generation EU', is kept separate from a planned seven-year €1.1tn budget plan for 2021-2027.

"Other EU budget issues such as CAP, cohesion, research and innovation are more important than ever. I also hope that we will use this opportunity to set Europe on the right path for the future, building a greener, digital, more resilient and sustainable union," the Taoiseach added.

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But Mr Varadkar did not address the issue of proposed new EU taxes to help fund interest costs and repayments for the scheme, which are due to kick in after 2028. The plans also contain various new EU levies and Irish concerns here centre on a proposed tax on big tech firms such as Facebook and Google.

Brussels diplomats suggested that such new taxes may in a worst-case scenario apply only after 2028. Others pointed out that tax changes still require unanimous agreement, and Ireland is not alone in opposing change - but it is clear the pressure on Ireland over its favourable company tax regime continues.

For the moment at least, Ireland is likely to continue borrowing on the open market which is cheaper than even low-interest EU-backed loans. But the grants packages appear to be of considerable interest and their focus on environmental protection and tackling climate change may help boost current government-formation talks.

Speaking to Newstalk's Ivan Yates, Green Party leader Eamon Ryan hailed the EU announcement as "exciting", saying it can help many environmentally friendly projects in the term of the next government.

Visit our Covid-19 vaccine dashboard for updates on the roll out of the vaccination program and the rate of Coronavirus cases Ireland


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