Showing posts with label EU subsidies. Show all posts
Showing posts with label EU subsidies. Show all posts

Sunday, February 10, 2013

10/2/2013: EU Budget 'cut': neither reformist, nor significant enough



EU has agreed the next multi-annual framework for its budget. One of the best summaries I have read is here: http://www.bruegel.org/nc/blog/detail/article/1010-how-to-read-the-eu-budget-deal/#.URfavqFaZF8

The framework covers 2014-2020 period.

The reduction of the EU Budget from from 1.12% of GNI to 1% of GNI, in my opinion, is in line with the overall fiscal tightening across the EU and is a good thing (note, obviously my analysis will be different from that of Bruegel - linked above). The reason why I perceive this to be a strength of the Budget is that I generally do not perceive EU expenditure as being more economically efficient or necessary than that by the Member States. The further you detach spending from the sources of revenues (and the EU Budget is as far detached as feasible to imagine), the more weakly is the expenditure anchored to the needs of the economy.

Net reduction - as measured by the payments, is from EUR988bn to EUR908.5bn - is a relatively marginal 8.05%, not exactly an earth-shattering level of fiscal crunching. Furthermore, much of planned payments allocated in the past have gone unspent, implying that the effective 'cut' is most likely going to turn out much shallower than 8.05% headline figure.

Crucially, I disagree with the implicit Brugel position (based on their criticism of the Budget's 'pro-growth' momentum) that the EU expenditure should be considered in the light of economic growth enhancement or economic contraction. The EU Budget allocations can and do set dangerous precedents of creating permanent interest groups reliant on EU funding for jobs and demand generation. One of the best examples are EU research and development subsidies. Since the EU budget is drawn out of the national resources, any 'stimulus' the EU Budget can create is at the very best a reallocation of similar stimuli from national economies. Synergies at the pan-European or cross-European investment levels (e.g. building common integrated infrastructure etc) enhance the EU Budget growth-support capacity, but bureaucratic duplication, and interest groups politics reduce it in return. With much of EU Budget going to 'soft' programmes, where (1) substitution effects relative to nationally-administered programmes are unclear, and (2) transfers are subject to EU-level political and bureaucratic objectives and constraints, it is hard to imagine the EU expenditure to be more 'stimulative' than a national expenditure.

Furthermore, in the environment of continued debt consolidation and budgetary tightening policies at the national levels, it is hard to imagine that the EU spending priorities would see more efficient allocation of funds than tighter national priorities. In other words, one has to ask a simple question of whether funding another cross-border EU 'cohesion' project is the better use of increasingly scarce resources in the environment where both countries involved are cutting back hospitals and schools.

As Bruegel correctly points out, there are no reforms undertaken in the Budget. My concern here, however, is more on the expenditure side, while Bruegel concern is focused on revenue side. I simply do not see the EU Commission to currently have either democratic or fiscal capacity to begin collecting direct taxes of any variety. Proposed move of the Commission into indirect taxation (e.g. FTT etc) is likely to cement further the democratic deficit in the EU by providing EU Commission with all the trappings of sovereign power and requiring no direct accountability usually associated with direct taxation.

Thursday, November 22, 2012

22/11/2012: Net cash - EU27


Via zerohedge.

In case you wonder who funds who in EU in 2012:


Do note that all peripheral economies of the EA are net recipients of EU funds and that is on top of the lending of funds by various European mechanisms. 

Saturday, October 20, 2012

20/10/2012: Irish Agriculture 2009-2011 - Value Added


CSO released data for gross value added in agriculture for 2009-2011 yesterday - a set of data that reveals the final figures for the various sources of income in Irish agriculture. The good news is that in 2011 the subsidies junkies have managed (in part on foot of booming agricultural prices) to derive some net value added from their activities. The bad news is that ba far the Agricultural sector in Ireland remains unproductive.

The core figures are defined as follows:
  • Net subsidies: Subsidies on products less taxes on products plus subsidies on production less taxes on production.
  • GVA at basic prices = Operating surplus + Compensation of employees + Fixed capital consumption - Other subsidies less taxes on production
I have written on many occasions before that Irish agriculture is an extension of the welfare state, in so far as most of the value added in it is provided for by the subsidies. Here are the latest details:

Thus, only in the South-West did 2011 net of tax subsidies cover less than 50% of the operating surplus. In Broder, Midland and Western region, net subsidies exceeded operating surplus.

Over the last 3 years:
  • Value of the total output in Livestock nationwide rose from €2,225 million in 2009 to €2,281 million in 2010 and €2,665 million in 2011 - an increase for 2009-2011 of cumulative 19.8%
  • Value of the total output in Livestock Products nationwide rose from €1,148 million in 2009 to €1,591 million in 2010 and €1,887 million in 2011 - an increase for 2009-2011 of cumulative 64.3%
  • Value of the total output in Crops nationwide rose from €1,377 million in 2009 to €1,523 million in 2010 and €1,751 million in 2011 - an increase for 2009-2011 of cumulative 27.1%
  • Value of the Total Goods Output in Agriculture nationwide rose from €4,751 million in 2009 to €5,395 million in 2010 and €6,303 million in 2011 - an increase for 2009-2011 of cumulative 32.7%
  • However, there was also a 16.9% rise in Intermediate Consumption of inputs that went into supplying the above Total Goods Output in Agriculture, which rose from €4,185 million in 2009, to €4,302 million in 2010 and €4,890 million in 2011.
  • At the same time, Net Subsidies (as defined above) rose only marginally - by 0.04% cumulative, from €1,813 million in 2009declining first to €1,649 million in 2010 and rising to €1,814 million in 2011.
  • As the result of this, Operating Surplus in Irish Agriculture went from €1,446 million in 2009 to €1,841 million in 2010 and to €2,395 million in 2011, posting a cumulated rate of growth for 2009-2011 of 65.7%.
All of the above means that absent net subsidies, Irish Agriculture's contribution to the economy (net of costs) would have been: a loss of €367.4 million in 2009, a gain of €192.5 million in 2010 and a gain of €581.5 million in 2011. With a sector that has managed to add - out of its own activity - just €406.6 million to the economy cumulative over last 3 years, we have a lot of policy and marketing hoopla about the value of Ireland's Agriculture.

The table below summarizes inputs and outputs in the GVA calculation for Irish Agriculture:

Even taking into the account wages paid by and to Irish farmers, the overall Agriculture's importance to the economy is (on the net) minor. Oh, and above does not account for the cost of running the Department of Agriculture and other tax-related spending that effectively is an added cost to the taxpayers.

Tuesday, June 23, 2009

Economics 24/06/2009: Agriculture's Value in Economy

Let the number speak for themselves. Per CSO data release yesterday:
Subsidies as a share of total value of production are creeping up, accounting in 2008 for 31.6% of the entire sector output. Intermediate consumption is also up, made up of various inputs. Net value added is down - the contribution of the sector to this economy through activities actually attributable to production: from 32.3% in 2004 to 13.7% in 2008. Why are we still having a Department of Agriculture in this country if the net and gross value added by this sector is smaller than the net subsidies the sector receives, i.e the sector produces less real value than it takes out of the EU in handouts...