Last Friday, European Commission president Ursula von der Leyen visited Dublin to announce the Commission’s approval of Ireland’s Recovery and Resilience Facility.

Under the facility, Ireland will receive just under €1bn, mostly in the form of grants, from the EU’s €750bn stimulus fund.

The fund is designed to support member states rebuild in the wake of the COVID-19 pandemic and assists in the green and digital transition of economies.

Member states were required to allocate at least 37% of all funding within the facility towards green initiatives and green transition.

The level of funding allocated to Ireland is among the smallest in the EU. This reflects the fact that, unlike most other EU funds, funding under the facility was not allocated solely on a per capita basis (per head of population). In reaching Ireland’s 0.75% allocation, GDP per capita featured heavily in the calculation, along with a number of other measures.

Huge cost

This move to include GDP per capita as a key to unlocking grant funding came at a huge cost for Ireland. It also no doubt reduced the level of EU grants available to support Irish agriculture in its green transition.

A recent EU fact sheet shows that once again Ireland, at over €70,000, had the second highest GDP per capita within the EU during 2020, second to Luxembourg. It compares to an average GDP per capita across all member states of just under €30,000.

But rather than reflect the true prosperity of the country, Ireland’s GDP is distorted by multinationals shifting capital assets to their Irish headquarters to avail of favourable tax rates. When stripped out using the Central Statistics Office’s Modified Gross National Income (GNI*) index, Ireland’s activity is about 40% lower than the headline GDP figure.

Had Ireland’s funding allocation been at the same per capita allocation as France, it would have received an additional €2bn

To assess the scale of the financial impact that this distortion had on Ireland’s allocation within the Recovery and Resilience Facility, we can look to how other member states fared. Italy, a member state with close to the EU average GDP per capita, secured €68bn. This equates to an EU grant of €1,152 per capita (person) compared to Ireland’s €201 per capita. Even Germany, which last year pumped billions of euro into its economy when state aid rules were relaxed, received a grant equating to €305 per capita or 50% higher than Ireland.

For smaller member states such as Portugal and Greece, the figure was between €1,350 and €1,660 per capita. Had Ireland’s funding allocation been at the same per capita allocation as Portugal, it would have received closer to €6.5bn under the facilty and almost €3bn if on par with France.

But Ireland was in a weak position to negotiate. Pushing the case for additional funding on the basis of an inflated GDP figure or seeking a move towards a GNI* index would have shone yet another light on Ireland’s favourable corporate tax rates – it is a fight the Government did not appear to want.

Positive impact

Of course, the aggregated impact of multinationals on the national economy has been positive when measured on the basis of economic growth and unemployment. On paper, Ireland has been propelled to one of the top positions in the UN human development index and as a top economic performer within the EU.

However, as income figures released this week from the Teagasc national farm survey show (see 18-19), the rising tide of Ireland’s economic performance has not lifted all boats. Once again we see the national average farm income continue to float around €25,000 – which interestingly is close to the average GDP per capita across the EU. But at just one-third of the average in Ireland, it places farmers in the dilemma of trying to compete in global markets while meeting EU standards and trying to compete in a high-income, high-cost economy where the cost of living is typically 25% higher than EU norms.

From the Teagasc figures, it is clear that the only sector that has a credible chance of surviving in this environment is dairy, where average farm income for 2020 was close to €75,000. For all other land-based systems, the need for EU and Exchequer support is clear.

This week, the IFA discussed its pre-budget submission. There are many legitimate calls to further develop schemes already in place. But outside-the-box thinking is also required, particularly in how we can link environmental and economic sustainability to drive farm incomes. For this to be possible, Government must, through maximising Exchequer funding for pillar 2 supports, acknowledge the need to provide balance across the economy and throughout rural towns and villages.

There is no way the Government can see farmers, 43% of whom earn less than €10,000, heavily penalised in the level of grants received from the EU to assist in the green transition of the sector due to the concentrated presence of multinationals in Ireland. More widely, the move by the Commission towards using GDP per capita as a key to unlock future EU funding is hugely significant for Ireland.