State faces €280m rise in EU contribution due to GDP revision

The Republic must contribute an additional €280 million to the European Union's budget next year due to the upward revision of last year's GDP growth, Minister for Finance Michael Noonan has confirmed.

It follows last week's revised figures from the Central Statistics Office (CSO), widely seen as overstating the GDP growth for 2015 to 26 per cent from a previous estimate of 7.8 per cent.

The EU’s budget is financed by contributions from member states, which are based on three factors: customs duties collected on behalf of the EU; a VAT-related payment; and a percentage of each member state’s Gross National Income (GNI).

The largest source of that revenue comes from GNI, which is made up of GDP plus income paid into the State by other states. GNI represents about 75 per cent of the Republic’s total contribution to the EU’s budget.

Bigger contribution

As the CSO revised the Republic’s GDP growth for 2015 up to 26 per cent, a bigger contribution is demanded of the State.

Mr Noonan, in reply to a parliamentary question from Fianna Fáil finance spokesman Michael McGrath, said the revision meant an additional €380 million would have to be contributed to the EU budget.

However, a number of “mitigating factors” mean the increase will be “in the order of €280 million” when compared to the forecast underlying the Summer Economic Statement.

“It must be emphasised that the final impact depends on a number of variables including the size of the overall EU budget for 2017, GNI movements in other EU member states, and other EU budget operational developments.”

In reply to a separate parliamentary question, Mr Noonan acknowledged that the revised GDP figures had been “distorted” by tax inversion deals by multinationals and the Republic’s booming aircraft leasing sector.

“This substantial upward revision is largely related to the activities of a small number of large multinational firms and reflects a number of exceptional factors which have limited impact on actual activity in the Irish economy,” he said.

“It is important to note that these factors do not reflect activity levels we are seeing on the ground. Although these revisions have significantly boosted investment and net export growth, they do not have a direct bearing on employment and wealth creation for Irish citizens.”

Exchequer figures

Corporation tax, which surged to record levels last year, remains the largest contributor to the exchequer, coming in 19 per cent or €505 million ahead of target at €2.67 billion for the six-month period to the end of June.

Fianna Fáil finance spokesman Michael McGrath said Mr Noonan ought to “urgently clarify” whether the increased contribution to the EU’s budget would impact the budget in October.

"Confirmation that the artificially inflated GDP figure for 2015 will cost Ireland an extra €280 million in hard cash brings into sharp focus the need for the Department of Finance to give a credible explanation as to how Ireland's growth rate could be distorted in such an unexpected and dramatic fashion," he said.

“Given the impact this extra liability will have on public services that people rely on, the Minister for Finance needs to urgently clarify whether this will have an impact on October’s budget.”