This is a motion in the names of Senator Robinson, Senator Mulcahy and Senator Alexis FitzGerald. By agreement of the House the debate on this motion is confined to an hour and a half and I ask Senators to be as brief and as concise as possible in order to allow the maximum number of Senators to participate.
Report of the Joint Committee on the Secondary Legislation of the European Communities: Motion.
An Leas-Chathaoirleach
I move:
That Seanad Éireann pursuant to the Order of the Seanad of 14th February, 1979, takes note of the Report of the Joint Committee on the Secondary Legislation of the European Communities on Resources for Financing the Community Budget, which was laid before the Seanad on 8th November, 1979 and which contains a request for a debate thereon.
In case it were possible as, alas, it sometimes proves to be, that I should sit down without having said something that is important for me to say, I would like to say that if the Taoiseach as President of the Council of Ministers should seek a commitment to increase resources for the Community, he would receive the full support certainly of the party of which I am a member, and I believe of both Houses of the Oireachtas. In the language which has been used in public by a number of responsible people in relation to the European institutions we are in or approaching a budgetary crisis. In broad terms I understand the bases structuring the receipt of money by the Community institutions, but suffice it to say what has been expressed by responsible people, that as expenditure is now incurred by virtue of various decisions already made, the budget itself—not including everything, there being additional costs—is so structured that the EEC will run out of cash and will reach its ceiling in the spring of 1980, or certainly in 1981, even on what may be optimistic projections of one kind or another. It is my very firm conviction, which I believe is shared with others, that this budget has got to be balanced. We cannot have deficit financing in the centre of this great Community, nor can we have either of the other alternatives, these being that it is left to the member states, by the adoption of a variety of individual fiscal measures, themselves to make up the contributions to cover the deficit. It is not acceptable to the people of Ireland, nor is it in the true interests of the Community generally, that the second alternative of cutting back should be adopted.
The cutting back they talk of in particular which is of concern to this part of the Community is the cutting back in terms of the receipts by the agricultural community of the amounts which they receive through the application of the institutions of the Community. The Common Agricultural Policy is the chosen means. Its precise form is not sacrosanct for me personally, but its general terms more certainly are, because this is the means by which one of the important objectives of the Treaty is realised. People have gone so far as to say that if the CAP goes, with it goes the general Community unity which is integrated politically at this level in terms of human living so experienced.
I am not going to exhaust either such attention as I may be scratching from the House at the moment or as may be collectable from any record of what I may say. I am not going to give a long account of the objectives of the Treaty. One of the objectives of the Treaty is to increase agricultural productivity in the Community. Another objective is to achieve for the farming community a fair standard of living, and the general understanding of what that means has been indicated in one of its forms in a formal communication, a formal piece of law which is operative in this Community. It is that this fair standard of living has been equated as being equivalent to giving to those engaged in agriculture a remuneration of unit labour costs equivalent to the remuneration of those engaged in industry in the same area. We are the Irish member of this nine-member Community. This Irish member has very considerable resources in its land, the productivity of which it is one of the objectives of the Treaty to achieve. No means can be tolerated by way of a solution to the budgetary problem which would prevent the increased productivity of this land. There are problems. Our passing a resolution to the effect that the earth is flat, will not make it flat. There are hills, mountains and valleys. There are political realities and economic situations. One of the political and economic realities is that part of the cost of the CAP is caused by rewarding production which is based on imported feedstock. That is a great cost to the Community in general which is being remunerated from the precise form of the mechanism that we have there at the moment. But in no way can we, as representatives of a people who voted 83 per cent for joining this Community, agree to a solution of the problems of a member with whom we would have considerable sympathy, or any other problems arising from breaching the ceiling, which would have the effect of preventing the growth of productivity of good Irish land which ought to be in the hands of an increasingly youthful population with enterprise available to develop that particular resource. That is enough said about that. There are obviously other cutbacks which would be even more intolerable where we should not merely not be contemplating a cutback but where we should be contemplating substantial increases.
When you consider that the total revenue which goes into the European institutions is only 1 per cent of the gross domestic product the ceiling is not approprite in its present form. It is not our business to do any more than to indicate, as I have done, a general support for the Taoiseach as President of the Council in making such a commitment. It remains of course, for this House and the other House to consider in due course the appropriate legislation which might follow the form of commitment which might result from the Commission's recommendation to the Council.
However, I would like to say a word by way of general counsel to the people; I suppose one has a certain duty to engage in that kind of pompous exercise. The community here and the members of this State, the people who lie behind us here in one form or another by way of mandating us, should be reminded of the economic benefits which are being derived from membership of the Community. I have reservations about this matter of economic growth, that is for a separate debate. While I cannot accept it as a worthy national object to go out and properly die to increase economic growth I am prepared to adopt for the purposes of rational living, economic growth as something which, if properly used, can be of human value.
On the basis of treating economic growth as a desirable need and assuming proper use and assuming that we are not calling income what is the utilisation of capital, according to paragraph 9 of this present Joint Committee's Forty-Seventh Report, referring to the Cambridge Economic Policy Review of April, 1979, the nett annual receipt from that budget by the people in this State is estimated—and I take the estimate to relate to last year because it cannot be this year—at £250 million. According to my calculations that represents about 3½ per cent of our national growth as distinct from our fiscal receipt—3½ per cent of the total productivity of this community is given to us out of this budget. So let us not be unconcerned or devalue the receipt we get in that form. Of course that is only one of the two benefits we get from the decision that the people made when they voted on this issue. That particular receipt is reflected in multiplier fashion throughout the economy.
There is the other receipt, quite independent of the budget; that is the receipt we get in terms of the 20 per cent investment rate increase per annum. Where does a lot of that investment come from? It comes because of the accessibility of the markets that are the Common Market, because of membership of this Community.
I do not want to subtract one iota from what I said in regard to the matter of the solution of the fiscal problem but it in no way lies in cutbacks or in borrowing but must lie in a commitment to an increase in own resources. I do not advocate the taking off of all limits. I simply say that it is a curious irony that we are moving into a period when we start using our own resources in the very year in which we are not going to have enough of our own resources. We must face forward into another decade on the basis of making a proper provision for that period. While we must face this as being an economic, political, social and proper reality having regard to the whole human position, nonetheless we must not fail to note that apart from the receipt from that budget there is the extraordinary receipt that we get through the opportunity to export, through the general membership and the encouragement there is to invest, through the employment that is generated and the response that it makes possible for those who have responsiblility here, in so far as they have, for reacting to the change in our population growth and so on. We must recognise that that is very important to us. I repeat that, as far as I am concerned and as far as this party is concerned the Taoiseach and Minister of State and anyone concerned have our full support.
I am pleased to be in a position to second this motion so ably moved by Senator Fitzgerald.
It is worth drawing the attention of the House to the fact that we are really noting the contents of two reports of the Joint Committee in this motion because last May the Joint Committee reported on the financing of the Community budget reported in the Forty-Seventh Report. In that report we referred to the urgency of the situation. In paragraph 16 of that report it is stated:
The Committee considers that this question of the future financing of the Community should now be pursued with a degree of urgency.
It goes on then to state what the position before the Council is. It is indicative of just how that urgency has become far more extreme and far more imminent that the Joint Committee took the unusual step of reporting a second time on the future financing of the Community budget for the purpose of ensuring that there would be a debate both in this House and in the Dáil on the contents of the report and on the subject matter of the urgent problem of the future financing of the Community.
It would be worth looking at the position as it was summarised in that First Report because it helps to bring the subject itself into context. Talking about the financing of the Community budget in the report last May the Joint Committee noted the source of the Community budget, this question of the decision on 21 April, 1977 providing for the own resources of the Community and, effectively, that these resources come from four sources, the common customs tariff, the agricultural levies on trade with nonmember states, sugar production and storage levies and the yield from a rate of VAT. The report goes on then to reflect on the nature of these resources of the Community. At an important paragraph, paragraph 7, it notes the Commission's own observation. I quote here what the report says:
Neither custom duties nor agricultural levies are levied specifically for financing the Community budget. Customs duties have economic and political rather than financial objectives and in any event receipts from this source are declining in real terms. Agricultural levies are primarily for the purpose of implementing the common agricultural policy and their yield being dependent on trade, prices and monetary fluctuations is inconstant and uncertain. VAT is therefore the primary source to which the Community must look to meet expanding expenditure. However, the Community VAT rate is already approaching the 1 per cent ceiling stipulated in the Council Decision of 21st April, 1970. For those Member States implementing VAT own resources in 1979 the rate is 0.72 per cent and, according to the Commission's latest estimates, the 1 per cent ceiling will be reached in 1981. The Commission's forecast is that when the 1 per cent ceiling is reached, the projected yearly increase in existing own resources on account of buoyancy will not be sufficient to keep pace with projected expenditure. Moreover the Commission's forward estimates of expenditure for 1980 and 1981 do not include any provisions for additional expenditure arising out of enlargement of the Community and the renewal of the Lomé Convention.
The problem and its gravity are stated in the first sentence of paragraph 8 of the report:
Unless revenue from existing own resources is to be regarded as setting an arbitrary limit to Community expenditure it is clear that additional revenue will be required after 1981.
Senator FitzGerald, in opening this debate, has emphasised the broader aspects of that problem. I would like to focus for a moment on the question of time scale. If it is accepted that the present method of financing the Community will reach its ceiling by 1981 at the latest—the situation seems to be even graver perhaps than was indicated in that report compiled last May—the present method of financing will not be adequate; there will have to be either new financing or arbitrary limits to the Community resources, which means cutting down on the regional fund, cutting down or eliminating the social fund and other dire consequences for the Community.
What then is the time scale that we are talking about? Because of the complex nature of Community decision-making, if there is going to be an effective decision for further financing, new sorts of financing of the Community by 1981, it is my understanding—and I would welcome the Minister's comment on this—that initial decisions in relation to the future financing of the Community would have to begin to be processed at the latest by spring 1980 so that they can be ratified at Community level and then go through the national parliaments for national ratification. One thing is clear about any decision regarding future financing; it will require, under the Treaty, to pass through the normal constitutional ratification procedure in each of the member states and, we are talking about nine, and perhaps ten, parliaments which would have to ratify the system in order to bring it into effect. So we have a time scale which would require the commencement of effective decision-making by spring 1980.
We have a political climate which is by no means favourable to the idea of increasing the size of the Community budget. Again I would welcome the Minister's comments on this point but, as I understand it, the indications are that the German Government are not enthusiastic about increasing or providing new sources of financing for the Community; the French Government are not greatly enthusiastic about it; in particular the British Government are so anxious to get out of the Community an amount equivalent to what they claim to pay in on a strict quota basis that, until their domestic problem in this regard is met or until some concessions are made, the British Government will oppose any consideration of enlarging the Community budget. Therefore, like Senator FitzGerald, I think this is a very grave moment indeed for the European Community and for this country. I believe that, as far as the European Community is concerned, all the political energy and skill of every politician, both in Government and in Opposition, should be concentrated on this single item, on the necessity to increase the resources of the Community and to ensure that effective decisions are taken by next spring to ensure that this new financial allocation comes in time for the 1981 budget so that the Community can continue to expand in the areas in which it is operating. It has to be spelled out very clearly.
There is no doubt at all that certain countries take some satisfaction in the fact that the agricultural spending is, as they would term it, hitting the ceiling and that is going to force a radical overhaul of the common agricultural policy. There is a very real attempt to play brinkmanship with this, to let the situation get so bad that there will have to be some kind of radical change in the financing of the common agricultural policy. This, for several reasons, is a very grave problem for Ireland. Ireland, as an agricultural country has the greatest need for stable prices and for that kind of financing of the common agricultural policy. There are criticisms that can be made of the approach of the common agricultural policy. There is room for improvement of that system of support for agriculture. But, far more important, Ireland needs to participate in a community where there is a genuine commitment to a balanced regional revelopment, and that has to mean that the richer sections of the Community are prepared to provide for a balanced regional development which means that they make concessions, that they take less out of the overall cake of the Community, that they make a larger contribution. I believe that this kind of balanced regional development, this kind of closing-the-gap between the poorer regions and the richer regions of the Community can only come from an enlargement of the Community budget.
If one moves away from the area of agriculture, the Community is totally failing to meet the other important social and political problems within its boundaries; it is totally failing as a Community to begin to cope with the enormous problem of youth unemployment and of general unemployment in the European Community. The funding from the Regional Development Fund and the Social Fund is miniscule in comparison to the gross national product of each of the member states and the overall GDP of the Community itself.
Therefore, this crisis in the financing of the Community should be seen in a political context as raising the very important question of how and in which way the Community develops in the future. That is why I believe the total concentration of Irish Government Ministers and Irish politicians should be on this question of the budget. It makes no sense for Irish politicians now to call for a larger Regional Fund or to say that there should be more emphasis on the Social Fund, because this is not facing the stark reality that these funds will not expand and indeed will have to contract rapidly if there is not a commitment to enlarging the budget of the Community. I believe that in any committee or forum in which we participate, this is the message which we should get home directly and unequivocally, and we should work towards the kind of political commitment which will ensure the increase in resources.
The Joint Committee in its report last May noted the various methods by which the Commission would propose increasing the financing of the Community. It refers, at paragraph 11, to the fact that the Commission was considering possible sources of additional revenue, indirect taxes such as VAT or special taxes on cigarette duties or alcohol duties and, as direct taxes, additions to Corporation Tax, Income Tax or Energy Tax. The Joint Committee expressed at least a tentative support for the idea of an increase in the Community VAT bringing it up from the 1 per cent ceiling. The Commission are to put porward concrete proposals in the very near future. When we visited Brussels and talked to the Commissioner for the Budget, Mr. Tugendhat, we formed the impression from him that proposals would be coming from the Commission before Christmas. Perhaps the Minister could give us some indication of when the Commission will be making proposals and when the matter will be coming up for decision.
In the meantime, in the view of the Joint Committee, it is vital that this matter be debated in both Houses so that during the November Summit to take place in Dublin a very clear message could go from the Government, supported by both Houses of Parliament of this country, that Ireland sees one crucial, urgent need at the moment, and that is the need for the political will and decision to increase the Community budget in order to allow the European Community to meet its economic and social commitments to the citizens of the European Community and in order to narrow the gap between the richer and poorer sections.
The Joint Oireachtas Committee have been very timely in bringing before us for debate a most useful report which signals certain difficulties which are ahead in the financing of Community expenditure. I should like, therefore, to welcome this report both on its own merits and on the way in which the House is now afforded an opportunity to debate the issues involved.
The own resources system of financing the EEC budget, which was inherited by us on entering the Community in 1973, has made a significant contribution towards ensuring stability in the Community expenditure policy. As the name implies, the system was designed to give the Community a source of income of its own as of right. This arrangement confers a considerable measure of financial autonomy on the Community, having replaced a system of national contributions which were settled from year to year. As indicated in the Joint Committee's report, under the Community's own resources system, revenues under certain revenue heads, namely customs duties, agricultural levies and the yield from a rate of VAT, not exceeding 1 per cent accrue automatically each month to the Commission. The system was introduced by a Council decision in April 1970 and implemented by various regulations made subsequently: the decision is referred to specifically in the Treaty of Accession; to amend it would require both a unanimous decision of the EEC Council of Ministers and in some cases the agreement of national parliaments.
The problem referred to in the Joint Committee's report, namely the question of finding new own resources for the Community budget, arises because in the future the revenue from customs duties and agricultural levies is likely to decline in real terms. As regards the customs duty element, this is collected on trade with countries outside the EEC whereas trade between member states is not subject to such tariffs. Thus, as EEC states can be expected to trade more and more with each other in the future, growth in receipts from the Community's common customs tariff will be affected.
They will also be affected because concessions under GATT and the new Lomé Convention will tend to reduce the levels of these duties and levies. In consequence the VAT element will provide the major part of the own resources in future years. According to the Commission's estimates the rate of increase in expenditure on the Community budget is likely to be such that the 1 per cent ceiling on VAT own resources will be reached in 1981. As a consequence in that year and thereafter, if there are no additional own resources, the size of the community budget will be limited not by the stage of development of Community policies but by the revenues available.
In the case of additional own resources the Treaty provisions are that the Commission shall submit proposals to the Council and that the Council, after consulting the European Parliament, may lay down the appropriate provisions which it shall recommend to the member states for adoption in accordance with their respective constitutional requirements. The Irish Presidency has encouraged the Commission to bring forward its proposals on additional own resources as soon as possible. So far, however, the Commission has not submitted a formal proposal to the Council. The Commission discussion document referred to in the Joint Oireachtas Committee's report of May last is the only indication of what the Commission's thinking on this subject might be. In that regard I was pleased to note that the Commission rejected the option that the existing own resources should represent an arbitrary ceiling on Community expenditure. This would be undesirable from this country's viewpoint. Among other things it could limit the opportunity to obtain additional funds from the Community to assist in our efforts to achieve high economic growth rates. The Commission document also ruled out the possibility of borrowing for current budgetary expenditure. The Commission came down, therefore, to the view that additional own resources would be necessary. I accept fully that in order to allow the Community budget to grow as an instrument of policy it will be necessary to find additional resources either by increasing the VAT limit or otherwise to amend accordingly the Council decision of 1970 relating to own resources. Otherwise the Community's ability to implement its policies will be frustrated. I am pleased to note that this view is also accepted by the Joint Committee in their report.
The Commission discussion paper was considered briefly by the Joint Council of Foreign Affairs and Finance Ministers last April. It is an open secret that at that meeting and at subsequent discussions certain member states have let it be known that they would not agree to an increase in own resources in the near future. Their attitude appears to be motivated, at least in large part, by a desire that the current rate of growth of Community expenditure, on agriculture in particular, should be arrested. Ireland's position is, of course, to support fully the principles and mechanisms of the common agricultural policy and the fact that there is a legal obligation to meet FEOGA guarantee expenditure is, of course, relevant in this matter.
As President-in-office of the (Budget) Council, I have stressed in the European Parliament that guarantee section expenditure is not governed by the budgetary authorisation, but rather by the basic regulations and the market situation. Any changes in the basic regulations can only by made in accordance with the procedure in the Treaties, that is, by the Council following an opinion from Parliament.
The argument in favour of additional own resources centres on the need for the Community budget to expand at a faster rate than the growth in existing own resources would allow. In my view, the Community budget should be given a greater capacity to contribute towards economic convergence in the Community through the development of structural policy instruments. The inadequacy of existing funds for these instruments, in total about 3,000 million EUA or 0.15 per cent of Community GDP in the preliminary draft budget for 1980, and the fact that disparities between the richer and the poorer member states have not been narrowed since 1973 should in my view highlight the need to increase the budgetary funds especially in the light of enlargement of the Community.
I do not accept the argument that the FEOGA guarantee section takes up too much of the budget. The FEOGA guarantee expenditure should be seen in its proper perspective. It represents no more than about 0.5 per cent of Community GDP and less than 3 per cent of total Community expenditure on food. This is hardly a significant level of expenditure and certainly it could not be taken that Community financing on this modest scale is a serious barrier to the proper development of other Community policies.
There is strong pressure in the Community to reduce surpluses of certain products covered by the common agricultural policy and to ensure that in general Community expenditure on agriculture is cost effective. The imposition of a ceiling on guarantee payments in particular as a result of a shortfall in own resources would, however, be a serious bodyblow to the whole idea of the CAP.
Enlargement of the Community to include Greece, and later Spain and Portugal, will clearly increase the demands on the Community's own resources. The acceding states, during their accession periods at least, are likely to be net beneficiaries from the budget. They will presumably be granted a reasonable share of the structural funds such as the regional and social funds in view of their structural weaknesses. Their accession will also give rise to increased expenditure under the FEOGA guarantee section on market support for their agricultural products.
In their report of May last the Joint Committee make reference to the Council's "agreement in principle on the need for the provision of additional own resources to meet the requirements of enlargement". While the Council has agreed that, subject to the usual budgetary procedures, appropriate provision would be made for the needs of enlarged Community, I am not aware of any commitment by the Council, even in principle, to providing additional own resources in the context of enlargement.
The Joint Committee favour an increase in the Community VAT rate subject to some sort of a corrective mechanism to take account of member states' taxable capacity or ability to pay. A basic principle underlying national tax systems is that full regard should be had to the ability to pay of a taxpayer. While there is, I think, a strong case for implementing this principle at Community level I fear that it would not be accepted by all member states. An advantage of attempting to secure an element of redistribution through adjustments on the own resources side would be that a given redistribution effect could be secured more readily than by acting only on the expenditure side of the budget.
To the extent that the Community VAT base is already harmonised, an increase in the 1 per cent VAT ceiling would be the easiest solution to the own resources problem from an administrative point of view. The lead-in time necessary for its implementation would be relatively short. If on the other hand the additional revenue were to come from any of the other sources mentioned by the Commission in its discussion document and with which the Joint Committee deal in their report there could be a long delay in the implementation process because of technical and other difficulties involved in harmonising the base. I would, therefore, see considerable merit in accepting as a new resource a further tranche of VAT.
The reluctance already shown by some member states towards making additional own resources available is a cause of concern. Nevertheless, I would not like it to go from here that we are facing a very immediate and intractable problem. There is still some time to go before the existing own resources system imposes an arbitrary limit on the scope for growth in Community expenditure. In the past the member states have shown the ability and determination to overcome difficulties. While this has frequently happened at a late hour the fact that it has happened is a sign of encouragement for the future. The closer integration of Europe seems to demand that over the coming period a solution, acceptable to all member states, will have to be found to the own resources problem. We will play our full part in striving to secure such a solution.
The Joint Committee in their May report have done us a service in making clear the outlines of what is a very complex problem, showing that it is a grave one from the point of view of Ireland and the Community and advancing some suggestions which I would like to endorse as being sound. The Minister, in his statement now, has made it clear that the Government are fully aware of the dangers for Ireland and for the Community of any undue postponement of the solution of this problem and, indeed, of arriving at a wrong decision. Clearly, the right solution is one that guarantees the Community, as of right, a new, or additional, resource of revenue from 1981 onwards. Clearly, the wrong solution is to revert to individual contributions at the discretion of member states, which, as we can clearly see, would merely strengthen the disruptive political leverage already evident in the Community. The Joint Committee endorsed the EEC Commission's view that there should be no deficit financing of current expenditure. I would have wished they had gone a little further and asked that this rule be applied to all the individual member countries, in the interest of harmonisation.
The provisional preference expressed by the Joint Committee and, indeed, the preference indicated this evening by the Minister because of its quick availability and its general efficiency, is to raise the present limit of 1 per cent on VAT. I looked at the reasons given for not having recourse to other forms of taxation and am satisfied that they are valid. The Commission did suggest that, perhaps, petrol might be an appropriate object of taxation, particularly as the whole Community wants to save more energy. This would run up against difficulties because of the different degrees of dependencies of individual member countries on petrol as a fuel and the different impacts increases in prices might therefore have on the individual country's economic development. The Joint Committee also recommended that the new tax, the increased VAT, should be so levied as to help reduce the economic disparities between the member countries. One could add that the proceeds should be so distributed, but the Minister has just made the point, which was well worth making, that if one can build into the taxation system some of the elements of removal of disparities this may operate in a more automatic way and arouse less contention than does the fight for increased distribution of resources on the expenditure side in favour of the less developed members of the community. The two must go hand in hand. This makes me support, entirely, what Senators FitzGerald and Robinson and, indeed, the Minister, have said about the primacy of securing this increase in their own revenue for the Community in order that we may have greater assurance, that not only will the common agricultural policy be preserved more or less intact, but also that the resources that we hope to secure in increasing measure—a hope never realised so far—through the regional fund, social fund and so on may be available.
This brings me to say how absurd it is that any major member country should be arguing for a balance between receipts and contributions. This idea of a balance is totally foreign to the whole principle of the Community and, indeed, it is quite contrary to the obligations accepted freely by all members, in consideration of the benefits of membership. These benefits for industrial countries—major industrial countries like Germany, France and Britain—include free access to wider markets, including the markets of the less developed member countries. No account seems to be taken of this benefit in arithmetic. This principle of resource transfer lies at the heart of membership of the Community, one of whose basic principles and objectives is removal of the disparity in development which exists at present between member countries.
The final point I want to make in that context is that, if one of the less developed countries has, as we did, joined the European Monetary System, and accepted in the interests of the Community the disciplines involved—and they are very severe disciplines, particularly when, as yet, there is no parity of trend in prices in the member countries of the Community and when inflation differentials all the time threaten either the maintenance of the original exchange rate or the maintenance of growth and employment and industrial activity in the smaller developing countries—it is very hard to take, from a country which is much more industrialised and has not accepted them, an argument of parity between receipts and contributions, because an industrial country that has not accepted the disciplines of the EMS has, in effect, reserved to itself the power and possibility of so altering its rate of exchange that it can nullify the benefits afforded to others by the abolition of tariffs and quotas in the community. With that point I will leave it.
I welcome the debate and the report issued by the committee. It is a truism to say that there is a great need for a much broader approach to the whole problem of Community finances, and I agree with the view expressed by a number of speakers that it would be wrong for the Community to allow itself to get into a borrowing situation. It is enough that the States do this. It would be most undesirable if we should let time pass and allow a borrowing situation to develop. The European Community has a very long way to go before one can say that Europe could be seen to be in any way complete. There is a lot of unfinished business in the social, political and economic areas before one can feel assured that this is something that will continue indefinitely. I do not wish to repeat a number of points that have been touched on, but the major area in which the Community has been successful is in agriculture. As Senator Whitaker has just said, the contribution to the other world through the use of trade concessions is, in itself, indirectly a major contribution which is not recognised. In addition, we here get a considerable contribution to the social fund, to the retraining of workers and employment generally. I feel that in large metropolitan areas such as Dublin the contribution being made by the community directly to us in this area is not sufficiently recognised. I agree with the general idea that the best way to proceed, the easiest, and probably the most efficent, way to set about correcting the financial situation is through an increase in tax on own resources. Apart from the fact that there is, unfortunately, a continuing prospect of increase here through inflation, it is a very efficient way.
I stress from my own experience in committees in Europe, that it was last year and earlier this year a matter of very serious concern. It has been repeated, I think, by the Minister this afternoon that there has, so far, been no identifiable means set out for making up the annual net cost of even Greek membership alone, as it will develop. The possibility of eventual Spanish and Portuguese membership is a good way off, but a mechanism needs to be found to deal with this. I would not like to give an estimate of the net cost, according to the Commission, of the Greek membership, but it will be considerable.
It seems to me, looking back over recent years, that the real weakness of the Community lies in the fact that it can only develop and move along with the support of all members of the Council of Ministers, of the member states and, perhaps, one should particularise by saying the heads of states. It is in that area that one finds decisions being taken and having been taken in the past. This means, as other Senators have said, that in each member state a very strong public opinion support of the community and its aims and ideals and a stronger sense of the need for the Community is becoming necessary. It will be necessary for all of us, in our various capacities in each of the member states, to try to arouse public feeling, so that the Heads of States themselves will realise that this is far more important than their own day-to-day political fortunes. The continued development of the Community in social, economic and political terms is, and will continue to be, a major contribution to peace and stability in the world.
I would like to end by congratulating the Minister and his colleagues for their performance to date during the presidency and also those on the civil service side who are supporting them, very often for very long hours. I was glad to hear the Minister, at the conclusion of his speech, recognising the seriousness of the financial contribution aspect and letting us know that we, as a member of the Community, will play our full part in trying to secure an early solution to this problem.
Whilst I agree with the principles and urgency expressed by the Senators, I must point out once again that although the Value Added Tax Amendment Bill harmonised the laws regarding the member states it still has not harmonised the rates applied to the various countries and, therefore, quite a few anomalies arise with different products, and hardship with competitors vis-á-vis different countries, because some products are zero rated in a country and yet they are paying the .72 VAT on those products. In other countries, like ours, there are certain products that are subjected to that which pay for their proportion of own resources. I am anxious to point out that, although it sounds an easy way to increase the own resources through the increase in VAT, we should press ahead for the harmonisation of the rates of VAT.
I was at a Joint Arts Council meeting in Belfast where they were discussing the movement of works of art across the Border, which is completely hampered and slowed down by different rates of VAT. Also, when one looks at television, one can see that in Ulster certain foods are cheaper because there is no VAT. I am anxious to see that in any pressure to move ahead with the provision of greater own resources we also press for the harmonisation of the rates of VAT, so that there is parity of opportunity and competitive availability under the Treaty of Rome.
I would like to say a few words. This is, obviously, a very serious problem. It is a problem, indeed, which confronts us with the possibility that the whole future of the Community, as we have known it, may be in danger. A short time ago, Senator Robinson suggested that we ought to have a decision on this by next spring—that this is necessary if the problem of our own resources is to be fixed up by the time the Community runs out of money, which will, presumably, be the 1982 budget. I wish I could be more optimistic, but my personal view is that there is not the remotest chance of this problem being settled by next spring.
I think there will be very, very serious problems, which are, perhaps, twofold. First of all, you have the immediate short-term, limited question of the capital at present being made by the British Government of the British contribution to the EEC. It seems, at the moment, very likely that there is no possibility of the British Government or, indeed, the British House of Commons agreeing to an increase in own resources until such time as a settlement has been reached which is satisfactory from their point of view.
There is, of course, the wider aspect, which several speakers have mentioned, of the common agricultural policy. I am afraid that we, in this country, face a future where the whole common agricultural policy on which so much of our economic development, not merely of our farmers but of the country as a whole depend, is now being increasingly threatened. I greatly fear that in countries such as Britain, Germany and, indeed, even perhaps Italy, there would simply not be agreement to an increase in own resources, so long as the situation continues where 70 per cent of the budget goes for agricultural matters. People will say: "All right, there is plenty of scope there for an increase in regional policy, social policy, energy policy, and so on, provided one cuts down on the agricultural policy—cuts down on the 70 per cent to 60, 50 or 40 per cent." I greatly fear that this will be the attitude taken in certain countries, and, in particular, in the parliaments of these countries. If this were a matter which could be settled by the council, one could imagine that, after the usual horse-trading, long all-night meetings in back-rooms and so on, it could be possible to come to some sort of a last minute agreement. Unfortunately, the question of own resources has to be settled, ultimately, by the national parliaments, and so much political capital has been made—in Britain about the question of its contribution, but also in Germany and elsewhere—with regard to the allegedly excessive amount being spent on agriculture with regard to the so-called surpluses of dairy produce and other matters, that it would be very difficult, from a political point of view, in those countries, to get a majority in favour of increasing own resources, until and unless a very radical change has been brought about in the entire financial scope of the common agricultural policy. I feel more than gloomy with regard to the future, because of these matters.
The problem with the EEC budget is, of course, that it has consistently been too small. The council has consistently tended to treat the Community budget as if it were a sort of national budget. They have tended to say, when times of depression come, that just as one has to batten down the hatches and try to cut down on expenditure on a national level, so also one should do this at the Community level. This comparison is a totally fallacious one. The Community budget is not like a national budget. It is a reflection of the entire existence and development of the Community. It is only by a very much larger Community budget, much greater expenditure in many directions, that the Community can really flourish and develop as we would all wish.
To say, in times of depression such as are now affecting most of Europe, that it is necessary to cut down on the Community budget is to say simply that, at a time when social regional expenditure is more important than ever, these must be cut down. The fact that these views are held is a fact of political life and one which will have its effect in all discussions for the future of the budget. We must welcome the undertaking given by the Minister that the Irish Government will press, so far as they possibly can, for an early and satisfactory decision with regard to the future of the budget, but I greatly fear that we will have a serious task on our hands. It is a problem which I suspect will go on through next year and through 1981. One hopes that when the decision does come, it will not be too damaging to this country.
I am delighted to have the opportunity to speak at the end of this debate. As Chairman of the subcommittee that prepared the 47th report which has been mentioned already, I would naturally have to say here that I agree with everything that is in it, but I thought that it might be useful to add a few comments.
It is a serious situation. As the Minister said, we do have a little time, in that we are running at about .7 or .8 per cent at the moment, but must look ahead to the point where the 1 per cent ceiling agreed in 1970 is reached. We have given our recommendation in the report and feel that it should be the VAT way. The seriousness of the problem comes out when you think that, when this was discussed before the Minister in the European Parliament, the draft figures mentioned showed serious cutbacks in payments in the social fund. For instance, in the council's draft for 1980, where the commitment was £547 million for the social fund, the payment to go out that year was £243 million. You have heard me before, in this House, mention that we were waiting for payments under the social fund in various bodies and institutions in this country, and large interest costs were incurred while people waited for their payments. I would hope that this will not occur in the future. It is rather interesting that it is in the social fund that this big differential between payments and commitments exists. I mentioned this as one indication of what might be happening.
In this budget, we are talking of about £10,000 million, which is somewhat over the Irish GNP. In terms of the total budgets of the member states, it is very small. I sympathise with the Minister in his position because, obviously, he is trying to get a consensus amongst a lot of difficult people. It is unfair to ask the Irish, when in the president's seat, to do this and that; they are in the difficult position of chairman, trying to get a consensus. For instance, the UK are enjoying the position they, themselves, are in. If I have any point to make in this windup, I would say that the UK are using this budget debate about their contribution as a red herring to confuse the situation and to distract attention from the fact that, as Senator Whitaker said, they are not playing the European game. If the convergence of the economy is to take place, which we all accept is what it is all about, then they should have fully joined the EMS. They have not done that and I would like to hear Mrs. Thatcher giving a little bit more attention to that aspect and a little less attention to the UK contribution to the budget. I am trying to be fair here. For instance before we discussed this in the Joint EEC Committee and before we adopted the report which is before the House, that well-known economic guru Samuel Britten gave an analysis under the heading "Lifting the Fog around EEC Finances" in the Financial Times of Thursday, 12 April 1979. What the UK are doing, if anything, is trying not merely to fog EEC finances but to solidify them. All I could do is to recommend to the Minister in the difficult situation he is in that he find a solution to this and not to give in to them too easily. In fairness, that paper gives a table which shows the per capita net receipts in the various countries in terms of the receipts and costs involved to the EEC. For the UK at the bottom of that table £20 per annum per head is what it is costing the UK to be a member of the EEC. We are at the top of the table and what we are getting out of it is £158. It is costing them £20 per head and £158 to us. I mention this to be fair to the UK.
But as Senator Whitaker has said, the benefits that the UK get from membership are not taken into account in that equation. It is significant also that it is only now that the UK are beginning to howl, because they accepted a formula in the Treaty of Accession for what their contribution would be and it is only now that their contributions are coming up to the level where they are beginning to notice it. The level that they are at now is one-seventieth of their GNP. They kept quiet in the lead-up stage but now that they have got their full commitments it is typical that they start to scream and they want to change the rules of the game. That has to be resisted.
The figure given in the Cambridge Economic Policy Review for net budget receipts for the UK is an estimated minus £806 million, but as a result of the MCA aspect of the agricultural area under net trade receipts they have to pay another £317 million. What is not brought out, of course, is that countries like Germany, who also would have a complaint about the level of their contribution to the budget, are happy enough to benefit from those MCAs in relation to their agricultural sector, so we are talking about a fairly complex subject. It is not easy to lift the fog, but it suits the UK to use the complexity of the understanding of the figures to make this point and they should not be let get away with it.
For instance, in estimating what it is costing them in net trade receipts which estimate is £317 million, they are taking into account some notional world price for agricultural goods and they are saying that they have got to pay more because there is "an artificially higher price for food in the EEC". As Senator FitzGerald pointed out, our resources are our land; the French have their resources and have land and they benefit out of it; the UK have their resources and they cannot set up the cheap food type of policy which will not allow us to get the full productivity of our natural resources. I see what is going on there as a red herring, an attempt to confuse the situation. They have benefited since coming into the European Community. How they benefited can be illustrated by the fact that their exports as a percentage of total trade have gone from 18 to 25 per cent since they have gone in and their export to import ratio has risen from 85 per cent to 95 per cent. One could ask what might have happened to them if they had not gone in.
As well as that, they are using the fact that other countries have taken some of the uncertainty out of the monetary and exchange movements in the EEC and they keep to themselves the right to move any way that suits them. Therefore, the policy for the EEC budget must be, as everybody agrees, to get more funds, to make the EEC work. It is not a matter of using the EEC budgetary policy as an instrument of fiscal measure to moderate economic development to the country. It is an enabling funding of the measures that have to be taken to meet the fundamental policies of the Community. Obviously they must grow. The report says that a slight increase in VAT should be the means, and I am glad that this House seems to support that view.
Before I wind up I would like to pay tribute in public again to the help that the Joint EEC Committee of the Oireachtas received from the staff of the Department of Finance and also, of course, from the staff of the committee. It is another example of what a joint committee of all parties of the Oireachtas can do when they set about it, and I was glad to note that the Minister recognised that the report was timely.
Question put and agreed to.