JOINT COMMITTEE ON EUROPEAN AFFAIRS díospóireacht -
Thursday, 23 Sep 2004

EU Preliminary Draft Budget: Presentations.

Chairman

We have received apologies from Deputy Jim O'Keeffe and Senators Dardis and Bradford. The first item concerns discussions with officials of the Department of Finance and the Department of Agriculture and Food on the draft preliminary budget of the European Community for the financial year 2005. Today we will discuss the draft preliminary budget, SEC (2004) 456. Members should also note that the sub-committee referred three further documents which are related to the budget, COM (2004) 402, on financial assistance to Iraq, COM (2004) 465 and SEC (2004) 910, relating to financial assistance to the Turkish Cypriot community.

The Department of Foreign Affairs has provided a background briefing on these issues which has been circulated to members. As members are aware the Sub-committee on European Scrutiny examines all draft proposals for decisions, regulations and directives and decides whether to refer these to other committees for detailed scrutiny. It decided to refer these documents for scrutiny to this committee.

We are joined by Mr. Dermot Nolan and Mr. John Palmer from the Department of Finance and Mr. Tony Burke from the Department of Agriculture and Food. The Department of Finance will take the lead in the discussion. I now ask Mr. Nolan to make a brief presentation after which the floor will be opened to members.

I have read the detailed briefing note sent by Mr. Nolan. It is very helpful and useful and is easy to follow for those of us not involved in the detailed budgetary process. I thank him for that note.

Mr. Dermot Nolan

I thank the Chairman. The EU budget is not the most transparent or easy process to understand. We were trying to facilitate the committee in coming to grips with the issues as readily as possible. I would like to introduce myself and my colleagues briefly before talking about the proposed EU budget for 2005. I head up the EU budget section in the Department of Finance. We deal with EU budget issues in general, including ongoing matters. We also deal with negotiations on the future financial perspective, which is starting to get into gear. I am joined by my colleague, Mr. John Palmer, who is Ireland's budget attaché in Brussels. He sits on what is called the budget committee, a committee of officials which considers all budget proposals coming from the Commission, examines them and then reports to COREPER, the ambassadors' committee and ultimately to the Council. Mr. Palmer will also be involved in the negotiations on the financial perspective.

I am also joined by my colleague from the Department of Agriculture and Food, Mr. Tony Burke. He is here in case there are any queries on the Common Agricultural Policy aspect of next year's budget. Mr. Burke is also involved in his Department's strategic area that deals with ongoing negotiations on agriculture, including the Commission's mid-term review and the future financing of the CAP.

The budget process begins when the Commission adopts its preliminary draft budget for the following year. It normally does this in May of the previous year. Having adopted the budget, it then forwards it to the Council. The Council's various working groups examine the Commission's proposals in detail in an intensive period over two months. That leads to the first Council reading of the budget which generally takes place in July. That is when Council adopts its first reading of the budget for the following year. Before that Council meeting and on the same day, we have a meeting with the European Parliament's budget committee and we try to find common ground. Since both the Council and the Parliament know there is a further conciliation with Parliament and a further Council meeting and a final reading by Parliament in November and December, there is little agreement or consensus at the July conciliation.

We met the Parliament in July following which the Council adopted its first reading of the EU budget for 2005. That has been forwarded to Parliament and we believe the Parliament has recommenced its consideration of the budget proposals. It will adopt its first reading in the last week of October in Strasbourg. The Council will reassemble on 25 November for its second and final reading of the budget. Before that takes place, we will have our final conciliation with the Parliament and if a consensus is to be reached and deals are made, that is the moment when it will be done. It usually goes down to the wire, but we have been largely successful in getting a consensus with the Parliament at that November conciliation. At that Council meeting in November, the Council will take the final decisions on compulsory expenditure. This is overwhelmingly expenditure relating to guarantee and market supports under the Common Agricultural Policy. The budget goes on to the Parliament for its final reading, and if the Parliament adopts the budget, the president of the Parliament will declare it adopted and the draft budget will be ready to be implemented on 1 January.

The first thing to note about the 2005 EU budget is that it will be the first budget that will cover enlargement for a full 12 months. Enlargement began on 1 May 2004 which means the budget has to include expenditure for 25 member states for eight months of this year. In 2005, it will be a full year for the EU 25. The Commission had proposed a budget, the main feature of which is €109 billion in payment appropriations, which is an increase of €5.8 billion in commitments or 5.2%. In actual payments to be made in 2005, it proposes an increase of €9.7 billion or 10%. That is a very big increase being imposed by the Commission. A number of factors give rise to the Commission's view that such an increase is necessary. The first is enlargement. Second, there has been an acceleration in the use of structural funding. Structural funding has been slow to get under way in the past few years, but according to the Commission, Structural Funding is on target and is possibly going beyond the target. Therefore, more money is needed for it next year. Third, there are financial consequences to the reform of the CAP which was agreed in 2003.

I would like to comment on Ireland's views of the Commission's proposals. We are generally happy with the overall proposals as they would affect us. I would not say we are 100% happy. When the budget committee was examining the proposals on the CAP, it made a €1 billion cut on payment allocations for the 2005 budget. Those cuts were made on headings above €1 billion in the Commission's proposals. As this expenditure is compulsory expenditure, the Commission will have to bring a letter of amendment to Council later in the year, amending its proposals to take account of what it feels is necessary for compulsory expenditure in 2005. At that stage there is generally no problem. Compulsory expenditure is compulsory and the budget has to provide for it. In November, the necessary amounts are usually added back on. We are generally happy that the allocations we submit to the Commission for Structural Funds will be paid from within the allocation that are there after the Council's reading.

Otherwise, we are happy with the way things have gone in other areas that were of concern to Ireland. The commitment and payment allocation for the International Fund for Ireland has existed since the Anglo-Irish Agreement in 1985. The €15 million in commitments and payments will be available in 2005 and that is exactly what we wanted. There also will be €101 million available in payments for the North-South peace programme. By and large, Ireland is happy with the budget as it stands.

The remaining aspect of the budget proposals which is of interest to Ireland is the question of Ireland's contribution. We currently project that Ireland's contribution to the EU budget this year will be around €1.177 billion. The Commission's proposals, if accepted, would mean we will pay €1.38 billion. There is a significant increase in contributions. This is a good sign of where Ireland will be on budget contributions in the future. In effect, our budget contributions will go to a new plateau next year and that is where they will be in the future.

Deputy Quinn

Is that the net contribution?

Mr. Nolan

No, this is the gross contribution to the budget. Under the Commission's proposals, we will give a gross contribution of €1.38 billion. The Council made certain cuts at its reading in July, which would have us at around €1.33 billion. Budgets usually tend to pan out in the ballpark of where the Commission originally proposes so the risks are on the upside. I think we will end up paying around €1.38 billion next year.

I was going to speak about the basic features of the budget, how it is funded and what it is spent on, but I think I have already gone on a bit and given the committee the main features of the budget for 2005. We can now take questions on specific aspects of the budget.

Chairman

The president of the European Central Bank was at the meeting of the European Parliament's economic and monetary affairs committee yesterday, which I also attended. He spoke about the Stability and Growth Pact and he does not share Mr. Prodi's view of the pact. Does the review of the pact have any budgetary implications for the EU as a whole? As there is no central budget, unlike the United States, the Stability and Growth Pact plays an important part, but does it have any budgetary implications?

I also have a question on compulsory and non-compulsory expenditure. Compulsory expenditure is treaty based, with the Council having the last say. The European Parliament has the last say on non-compulsory expenditure. What constitutes compulsory and non-compulsory expenditure? What percentage of the budget does each make? Will Mr. Nolan inform the committee how the VAT resource is calculated?

There is a detailed note on emergency aid reserves and loan guarantee reserves under heading 6. How are these reserves used? The note also states under heading 2 on Structural and Cohesion Funds that we are now at "cruising speed". However, it states that the overall Structural Funds allocation had proved excessive from Ireland's perspective. Perhaps Mr. Nolan might explain this and also inform the committee what happens to budget surpluses.

Front loading is dealt with under heading 5 on administration. Could Mr. Nolan explain the term "front loading"? With regard to the ACP table which appears to indicate funding cuts in the ACP area, could Mr. Nolan send the committee a detailed note on how the EU-ACP funding takes place and the interaction of EU member states' contributions to development aid?

Deputy Quinn

I thank the Chairman for his pertinent questions and look forward to the answers. I have two questions, one from either end of the vast spectrum that is the budget. My first question is to Mr. Nolan. The budgetary method he described is quite different, politically and culturally, to our method. Which method does Mr. Nolan think is better?

My second question is for Mr. Burke. There is a controversy in Ireland about hill walking and access to the open countryside. Part of this has been fuelled by a change in the rural environment protection scheme. If Irish politicians or MEPs wanted to revert to the position whereby farmers, as part of their REPS payment, would be deemed to be maintaining access to the uplands, what procedural steps would be needed to achieve this?

Ms Doyle, MEP

I take my cue from the second part of Deputy Quinn's question and presume we may broaden our questions so long as they are relevant to the officials present. What procedures will be put in place for farmers not satisfied with their single farm payment termination, especially those made under force majeure provisions? These budgets are an important part of the planning for next year of individuals in rural Ireland and there is growing unhappiness about whether they can have oral hearings on refusals of force majeure appeals in particular, as well as other appeals.

Will the officials provide the committee with simple figures? The figure of €1.38 billion was referred to in the context of what we might expect to contribute as a percentage of our gross domestic product, GDP, next year. It either is or is not that figure, depending on how we calculate our GDP. This is up to us and I am sure the Commission will decide on the basis of the figures we publish, assuming they are honest figures unlike those of our Greek colleagues who had an apparently creative attitude towards their figures. However, I assume our figures are honest, and I thank those in the Department responsible for this and for keeping the books of Ireland Inc. We will pay approximately €1.38 billion to the central coffers. However, given that we will receive funding in Structural Fund receipts and Common Agricultural Policy, CAP, payments, we are still net beneficiaries. Will the Department of Finance representatives inform the committee the figure for this balance and how they see it changing over the next ten years or so? While we know what we are getting under CAP until 2013, have we a simple figure for the balance between payments and receipts in coming years?

A new temporary committee on financial perspectives was set up in Europe before the Agenda 2000 debate to consider the longer-term budgetary provisions for the period 2006 to 2013. What is the Department of Finance's view on this? What, if any, will be the Irish input? While I realise that some of us, as MEPs, will be part of the committee, has the Department had an input and where does Ireland or any member state connect to this important temporary committee which is considering longer-term perspectives?

I was at a plenary session in the Council chamber in Strasbourg when the President of the Commission, Mr. Prodi, made his famous remarks on the Stability and Growth Pact and used the expression "stupido". While I am not an Italian speaker, I am assured by my Italian colleagues that this expression does not have the same nuance as "stupid" has in English. He was referring specifically to the lack of flexibility in ascertaining what was counted as debt in the debt to GDP ratio, whether certain capital payments could be parked and whether the drawdown of expenditure on infrastructure would increase growth. In the longer term it might help growth to reduce the GDP ratio if one allowed for borrowings. Some countries were caught in a chicken and egg situation in that regard.

Mr. Prodi said it was somewhat "stupido" that there was such a lack of flexibility in the definition of what could be included in the debt part of the debt to GDP ratio and that this was crippling some economies from growing out of their budget deficits. Mr. Prodi has given us many reasons to have stories about him and no MEP does not have a story about him. However, he was not saying that the growth and stability pact per se was stupid. The word “stupido” is a much softer Italian term — I am subject to correction on this — and he was saying that it was silly to be so inflexible.

Proinsias De Rossa, MEP

Perhaps he meant "thick".

Ms Doyle, MEP

That would be even more pejorative. Nonetheless, to keep this in context, Mr. Prodi did not say that the Stability and Growth Pact was stupid. He opened up a question as to whether we could look again at what was counted in that regard.

Chairman

There is a difficulty with that because yesterday a rapporteur to the European Market Awareness Committee, EMAC, meeting used the sentence in English: "The President of the Commission acknowledged that the stability pact was stupid."

Ms Doyle, MEP

That is political creativeness.

Chairman

It was not "stated" or "claimed" but "acknowledged" that the pact was stupid. This is how it has been translated.

Ms Doyle, MEP

It has entered folklore and myth. Unfortunately, it is there as a given.

Chairman

It was in the rapporteur's report to the parliamentary committee.

Senator Quinn

I congratulate Mr. Nolan on his explanation. I said to someone yesterday that I was attending a meeting today to discuss the European budget. That person's reply was that we never hear anything about the European budget. Deputy Quinn referred to the comparison of our budget and the European budget. It was suggested to me that there was almost a conspiracy of silence about the European budget because we hear so little about it. It was also suggested that the reason for this was perhaps to avoid — I love the term "compulsory expenditure" — the citizens of Europe and Ireland recognising how much of their taxes are spent on CAP payments.

As good Europeans and world citizens, we have not taken the correct steps to recognise our behaviour over many years in taking money from our citizens to pass back to agriculture in various forms. This is not a good demonstration of world citizenship when so much of the world is excluded from European agricultural policies and certainly not a good demonstration of citizenship in a Europe where so many are not involved in agriculture.

For many years it was easy for Ireland to take this decision. However, when I hear that the figure of €1.38 billion, or perhaps €1.33 billion, is creeping up, I ask to what extent we are still wearing the hat that says Ireland is an agricultural country and, therefore, it is up to us to support the agricultural policy as it has been, even if it has been tampered with in recent times. Have we recognised that, in future, we are unlikely to be an agricultural country to the same extent we were, that our economy will not be based as strongly on agriculture and that we would represent the citizens as customers much better if we took a different attitude to this in the years ahead? I say that in the knowledge that Mr. Trichet yesterday described as "very dangerous" the Commission's proposals that eurozone governments should be given a more flexible timetable for cutting large deficits according to national circumstances. The term "very dangerous" was used. Are we also, as Europeans, in the very dangerous position of not recognising the steps we have been taking, even though we have taken some steps in the right direction in recent times?

Deputy Harkin

I congratulate those involved on the briefing documents. As a new MEP trying to grapple with the financial perspectives, I found them excellent and have read through them carefully. I reiterate what Ms Doyle said about the single farming payment and whatever flexibility we have in that regard. I am interested to hear what Mr. Nolan has to say on that and the other point he raised about where Ireland can input into this temporary committee on financial perspectives on which some of us will serve. The briefing stated that Structural Funds were at cruising speed at present. Do we still have problems with absorption? If so, what is happening in that regard? Obviously, we are beginning to solve those problems. I would like to hear a little about it.

It would appear that even though we are increasing our contributions, our net receipts still exceed our contributions in 2004 and 2005. In that context, a number of countries are looking at a proposal to limit EU expenditure to 1% of GNI. Does the Department of Finance have a view on that given that we are now reaching a different level or plateau when it comes to contributions to the EU?

We recently voted in the European Parliament on the rebate for the UK. It is explained reasonably well in the briefing documentation but it appears to be a quite complicated issue. If there is a relatively simple explanation of it, I would like to hear it. How does the role of public private partnerships fit into the Stability and Growth Pact? I think I asked this question at the committee some time ago.

Deputy Haughey

My question relates to one asked by Deputy Harkin and concerns the contribution by Ireland to the UK rebate. I am intrigued to see that it is proposed to make a contribution next year of €106.5 million. Like Deputy Harkin, I would like to know a little more about this. I appreciate that this agreement was reached 20 years ago at the Fontainebleau European Council in 1984. I was not a Member of the Oireachtas 20 years ago but we all remember the then British Prime Minister, Mrs. Thatcher, banging the table looking for her money back. Is this rebate justified 20 years later? Do other member states have a similar claim for a rebate? I also note in the very good briefing that some countries, including Germany, the Netherlands, Austria and Sweden, have reduced the proportions to be paid. Is this rebate still justified 20 years later? Do other member states have a similar case to make? Is the rebate issue one for further discussion in years to come?

Proinsias De Rossa, MEP

I am sorry I missed most of the presentation. The budget is a matter with which I have been dealing in the employment and social affairs committee in the European Parliament. That body has put forward a number of concerns in this regard to the main budgetary committee in the Parliament. One of them, which I have raised, is the proposal in the draft Commission budget to reduce the funding to the Dublin Foundation for Living and Working Conditions. The committee, of which I am member, voted to restore the proposed cut. I am not too sure what the Parliament's budget committee will do with the proposal itself. I would appreciate if Mr. Nolan could indicate to us in the next week or two what the Government position will be on this because it will come to Council at some point. It is important that the foundation, which is based in Loughlinstown and which was one of the first institutions this country gained as a result of joining the European Union, is enabled to carry out its work now that we have 25 member states and that the task of studying and analysing how we can improve not only the working conditions but also the living conditions of people in Europe can be advanced. It plays an important role. My committee in the Parliament depends to a significant extent on the material that foundation produces for Europe. It is important it has adequate funding to do that.

I refer to the EQUAL programme where a cut is proposed. I understand the area which is proposed to be cut is work on discrimination in the workplace. That is an area which we can see even domestically needs to be addressed in a more comprehensive way. In regard to social exclusion, the proposal from my committee in the Parliament is that there should be an increase in the budget for social exclusion, especially in light of the expansion of the Union. Many of the new member states require assistance in this area.

I would appreciate if Mr. Nolan could indicate that we will not entirely focus on the Common Agricultural Policy, CAP, which, in any event, is a matter for the Council and the Commission. The European Parliament has no say in the area of compulsory funding. If we ratify the Constitution, dividing compulsory CAP funding from the rest of funding will no longer take place and the budget will be dealt with as a whole. That will enhance the role of the European Parliament in that area.

I wish to touch on the point raised by Ms Doyle, my colleague in the European Parliament, which I raised at the previous meeting, namely, the question of the financial perspectives. We are aware from the briefings we received in Brussels that the tempo of discussions and the tensions of them is increasing. As far as the political process in Ireland is concerned, the debate does not exist. Clearly, there are major implications and not only for our budgetary situation. We need an adequate budget to ensure the European Union as a body can help with the balanced development of all of the economies throughout Europe, including those in the new member states. As it is an important debate, might we have a more detailed discussion on the issue at an early date?

Chairman

That is something we can put into the system and try to plan for.

Deputy Ó Snodaigh

I have two questions relating to the internal policies. Two notes are provided in respect of nuclear safety. The first relates to the EURATOM nuclear safeguards, while the other just mentions nuclear safety. Are these designed to keep nuclear power stations operating safely or are they aimed at decommissioning some of those that are in a dangerous state throughout Europe? Did Ireland make any comment on spending that amount of money on nuclear power?

My other question relates to pre-accession strategies. As regards the pre-accession instruments — SAPARD, ISPA and PHARE — are these specific to individual countries or do they apply across the board? Over €286 million is proposed to be allocated in respect of Turkey.

Mr. Nolan

I hope we have taken note of all the questions posed. If we leave anything out, members can bring it to our attention. I propose to go through the list of questions and answer directly those in respect of which I have the answer immediately to hand. I might defer to my colleagues in respect of one or two others. I will reply to the questions in the order in which they were asked.

The Chairman asked about the Stability and Growth Pact and the EU budget. I am not an expert on the pact, which is handled by national budget units. However, as regards the EU budget, every member state's direct contribution to the EU would form part of what are known as the Maastricht returns. In other words, it is part of government expenditure. Whatever Ireland pays directly into the EU budget goes forward for assessment as to whether it is meeting its national targets.

My colleagues may elaborate on the question of compulsory versus non-compulsory expenditure. Basically, compulsory expenditure is overwhelmingly devoted to agriculture but some of it goes elsewhere. Non-compulsory expenditure essentially relates to Structural Funds, internal policies and external policies. Percentage wise, agriculture accounts for between 40% to 45%.

Chairman

It is 45%?

Mr. John Palmer

I have actual figures with me. Unfortunately I do not have a calculator but, based on the preliminary draft budget, it comes out at around that percentage. In the preliminary draft budget, compulsory expenditure amounted to €46.7 billion versus €62.7 billion for non-compulsory expenditure. The main elements of compulsory expenditure are CAP. Within that, however, are market measures and direct payments. Matters such as rural development, etc., are non-compulsory. International agreements made by the EU come under compulsory expenditure. The vast majority of these relate to fisheries. The EU pays Mauritania and other countries to allow vessels from member states to fish in their waters. There are other miscellaneous matters. For example, if the Commission loses a case in the European Court and an award is made against it, that, by definition, comes under compulsory expenditure.

Chairman

Would it be comparable to national payments from the Central Fund, which are legislated for, and the annual budget passed by the Dáil?

Mr. Palmer

It would be a rough comparison. Basically, it comes down to the difference between treaty-based matters and regulations — which are also treaty-based. If the money has to be paid anyway and if somebody took a case and an award automatically had to be paid, that is comparable to expenditure. All the others are considered discretionary. It is a very blurred line and it is patent rubbish to say that one's administration is non-compulsory and discretionary. People's salaries have to be paid.

Ms Harkin

Did our guests state that rural development is non-compulsory?

Mr. Palmer

Yes.

Mr. Nolan

To move on to the matter of how the VAT resource is calculated, I would probably have to provide a thesis on its origins. Every country calculates its VAT base according to common rules. This base is capped and cannot be more than 50% of a country's gross national income. Since our VAT base is approximately 56% of our gross national income, it is effectively 50% of our gross national income. A common rate is applied to every country's VAT base thereafter. For next year, the rate will be 0.31%. When this is applied to the VAT base for every country, it will lead to the production of a revenue amounting to 15% of the resources needed. One then takes one's revenue from traditional resources, that is, customs duties, and one's revenue from the VAT resource and then the GNI resource must make up the balance, which is 75% of EU expenditure. I will ask my colleagues to comment on emergency aid and loan guarantees.

I was asked about structural funding reaching cruising speed and what this means compared to previous years. For approximately three years there has been a substantial problem whereby the allocations voted by Council and Parliament for structural assistance have been dramatically underspent. In other words, €35 billion might have been voted in the final budget and the Commission only spent €25 billion. There are reasons for that. The Council and Ireland would be of the opinion that the Commission has become very bureaucratic about finalising and approving Structural Fund payments and the entire process has become much slower in recent years. The Commission has stated that this period of underpayment is over and that it expects to spend its allocations.

Chairman

Was that because of new member states?

Mr. Nolan

No, it was more to do with the fact that the system was not processing member state claims fast enough. The Commission has now taken a more proactive view on that and it would state that member state applications are being received more quickly and in a more useable format. It has also stated that Structural Fund expenditure is meeting allocations and, if anything, it might actually exceed them. Pressure is building in that regard. The two or three-year period when Structural Fund allocations voted to the Commission were not fully utilised seems to be over.

Chairman

Will Mr. Nolan elaborate on the term "cruising speed"?

Mr. Nolan

That is a phrase we took from a Commission brief. The Commission used it to indicate that structural funding is in line with targets.

The next question related to the budget surplus. The European Union is not allowed to borrow money. At the end of the year, therefore, its expenditure and revenue must balance or there must be a surplus. In practice, it is not possible to arrange that it balances exactly so there will always be a surplus, whether small or big. As a result of the difficulty spending Structural Funds for the past two or three years, surpluses have tended to be large. Any surplus left over at the end of one year is carried forward into the next and it is used to proportionately reduce member states' contributions.

Deputy Quinn

Is it entirely eliminated each year?

Mr. Nolan

The surplus is entirely written into this year's budget. If there is a surplus of €5 billion left over from the 2004 budget, it will be recorded as revenue in the 2005 budget and member states' contributions will be reduced by that amount.

Deputy Quinn

Is there a legal prohibition on carrying reserves from one year into the next?

Chairman

Our guests did not answer my question on reserves. Will they deal with that matter now, particularly as Deputy Quinn also raised it?

Mr. Palmer

There are always a few exceptions where reserves are allowed. The Chairman asked about the loan guarantee reserve and the emergency aid reserve. The loan guarantee reserve is for loans made directly by the European Union or, more often, the European Investment Bank in the form of macro-financial assistance and so forth. It is guaranteed by the European Union. The way the reserve works is that at any given point there is supposed to be a provision of 9% of outstanding loans. This reserve is drawn down from member states as a separate item each year to top up or reduce the reserve because it is difficult to manage. As each new loan goes on, they look for 9% more but they then have to take into account repayments during the year to bring it to the 9% level.

The emergency aid reserve is €222 million this year. Its purpose is to provide for a rapid response to specific aid requirements of non-member countries following events that could not have been foreseen when the budget was established. Therefore, it cannot be used within the European Union. It is supposed to be used, first and foremost, for humanitarian operations. Following the conciliations on the 2003 budget, a declaration was agreed between the Commission, the Council and the European Parliament that expanded the scope of the emergency aid reserve to be used for civilian crisis management. When there is a crisis, the Commission makes a proposal to which the Council and the European Parliament must agree before the money can be used. It is then added to the budget through an amending budget.

Deputy Harkin

Mr. Palmer has stated a reserve cannot be carried over from one year to the next. If there is a surplus, it is returned to member states. Let us say €100 million is allocated for Structural Funds over five years at €20 million a year and in year one only €16 million is allocated. The balance of €4 million is redistributed. That means the payments are reduced whatever the original allocation. Is there flexibility in years three and four to increase payments to make up for the shortfall in year one?

Mr. Nolan

A feature of the budget generally is that there are columns for commitments and payments. The last agreement on Structural Funds was reached in Berlin in March 1999 and there is a political agreement about what each country will get in Structural Fund commitments. This is reflected in the annual budgets covered by the period of the financial perspective, 2000-06. A commitment to a country means the European Union will fund that project and pay the claim submitted by it as long as everything is above board, the project has been completed and proper applications have been submitted. If there is a saving one year on payments under the Structural Funds, the projects those payments might have been intended to fund could be funded the following year. The commitments are important because they involve political and legal commitments to a member state that if it gets a project done according to the rules and submits a proper application, it will receive payment. The commitments are the important element because, once they are made, the Union is obliged to pay a member state following a properly submitted application.

Mr. Palmer

Frontloading is pay today what one could pay tomorrow, thereby fixing the figures. It normally takes the form, particularly in administrations where it is used, that there is not enough money for the following year but there is spare cash for the current year and they pay the first quarter's rent on 31 December. A full quarter of the following year's rent is, therefore, paid on the final day of the previous year. Expenditure is moved between the years.

Chairman

It is a receipts and payments system, not an accruals system

Mr. Palmer

Yes. It had been used from time to time but was first used in a major way for the 2003 budget when there was a great deal of pre-accession expenditure, for which the financial perspective had not made provision. It added a significant increase to the financial perspective for administration for 2004, the year of accession, whereas in 2003 a great deal of preparatory work had to be done. To fund this, a major frontloading exercise was undertaken to produce a budget which was agreed with the European Parliament. It was used subsequently but becomes a false saving because when one frontloads from year to year, one is not saving ultimately.

Chairman

Is it a mixture of receipts and payments and an accruals system?

Mr. Palmer

No, frontloading is done on the expenditure side.

Chairman

If at the end of year, for example, bills have not been paid for electricity or salaries, presumably, they are taken into account. Their accounts are partly accruals and partly receipts and payments. Is that same system now followed?

Mr. Palmer

That is a difficult question.

Chairman

It is not similar to a set of company accounts that would be accepted.

Mr. Palmer

The Commission is in the process of undertaking a massive project to move its accounting system to an accruals basis completely but it will be very much like our own system. There will be a massive accruals accounting system bolted on top but the underlying system will still ultimately be cash-based. Contributions that come in each year pay the bills each year.

Chairman

Will Mr. Palmer forward a detailed note on ACP and so on?

Mr. Palmer

I will.

Deputy Kirk

All budgetary arrangements are Community-state. Is there a provision for Community-region arrangements for local authorities which wish to implement development plans in their areas? Must they be accommodated within the national budget?

Mr. Nolan

I am not familiar with the Structural Funds but will answer the question as best I can. When political agreement is reached on what structural policy will be over the next six or seven years, for instance, it is done within the context of EU-wide regulations. Agreements and the regulations that govern structural policy are reached between members states. Local and regional authorities will, therefore, be involved to the extent that the regulations provide. There is provision for the two regional assemblies in Ireland to be involved in the deployment of Ireland's share of structural assistance for the period 2000-06.

Deputy Kirk

Do they have a consultative role?

Mr. Nolan

My understanding is there are five programmes altogether, three of which are island-wide while two are specific to the BMW and south and east regions. They are in the driving seat regarding the specific programmes. The other three relate to infrastructure, the productive sector and human resources. Two regions with the State are in the driving seat on two of the State's five programmes. That was possible within the regulations. There will be a mix and match depending on each member state's administrative and political system.

Deputy Kirk

But it must be accommodated within the State's budgetary arrangements with the Community. There are no arrangements between regions and the Community.

Mr. Nolan

Member states take the lead for themselves. Depending on the political and administrative structure within a member state, it is free to develop programmes that involve the regions and localities in the negotiations with Brussels. There is no provision whereby a region or locality could go directly to the Commission and negotiate a programme for structural assistance without involving the national authorities.

Deputy Quinn's question referred to the EU budget system compared to the national system. I cannot say one is better than the other. Both reflect the various historical and political circumstances which gave rise to them. They have their strengths and are both rooted. The EU budget system has grown since 1957 and evolved considerably. Currently, the financial prospectus plans EU expenditure for seven years. Some 25 member states must reach agreement on budget proposals from the Commission and until the late 1980s every annual budget produced a crisis. For several years the annual budget was not agreed until January or February of the following year. This is different from a single member state where a government with a majority in parliament can have a budget approved. At EU level substantial financial allocations must be agreed between 25 member states. Jacques Delors's answer to this annual budget crisis was a financial prospectus where negotiations are put into one crunch covering the financial allocations for seven years. This eases the annual budget process because everyone knows what the parameters are and the annual budget does not give rise to a crisis as it used to. That system was devised to deal with the particular circumstances of the European Union and, by and large, works well. Our national system reflects our national circumstances and historical background.

The next question referred to hill-walking.

Mr. Tony Burke

The terms and conditions of the existing REP scheme are agreed and farmers have signed up to it. It would be difficult to change them midstream. It would be especially difficult to impose new conditions on farmers. It would be possible to go back to the Commission to renegotiate but it would be difficult to impose those new conditions on farmers at this stage. However, there will an opportunity to review all of this under the new financial prospectus.

The new generation of rural development programmes will be introduced in 2007 as part of the financial prospectus proposals. There may be legal questions regarding whether a farmer can be required to provide public access. It might be possible to provide an incentive for farmers who do so. Farmers who grant access could be paid a higher rate under REPS. That will be considered in the context of the new programmes which will be under discussion shortly.

Mr. Nolan

The next question refers to the figure of €1.38 billion and how it compares to our receipts. The Commission's proposals would involveus paying €1.38 billion next year. Our rough forecast is that we might receive approximately €500 million from the Structural and Cohesion Funds and approximately €1.7 billion under the Common Agricultural Policy. Taking €1.7 billion as the lowest possible figure under the CAP and €500 million from the Structural and Cohesion Funds we could expect to receive €2.2 billion, which compares to the Commission’s estimate of our contribution of €1.38 billion. We are talking about a possible net benefit from the EU budget in 2005 of roughly €800 million which is substantial. However, Structural Fund receipts are on a downward projection from the peak of Structural Fund receipts in 1998-99. Much will depend on the outcome of negotiations on the next financial prospectus. Ireland lost access to the Cohesion Fund last year because our per capita GNP was assessed as being more than 90% of the EU average. Our southern and eastern region is already completing its transition from Objective One status. The next financial prospectus will see what happens to the BMW region but it certainly will not be receiving the same level of funding as at present.

The picture with regard to agriculture is probably more stable. However, some time in the period beginning 2007 — I do not think it will be earlier than 2009 — it is probable that our contribution to the EU budget will be greater than our receipts from it. This will mean a change in Ireland's financial relationship with the European Union from the period since our membership in 1973. At some stages during our membership our receipts were at a ratio of 6:1 to our contribution. Our contributions are now at a ratio of approximately 1.5:1 to our receipts. The two figures will soon be equal and our contribution will then become greater than our receipts. This will be a new phase in our membership of the European Union. This is entirely natural because it reflects the very substantial economic growth which has taken place in Ireland in recent years. This has implications for our contributions and receipts. We are moving into that group of members which have, historically, been net contributors.

The agriculture budget has been agreed by Council until the end of 2013. The mid-term review of the Common Agricultural Policy and funding for it will obtain until the end of 2013. That policy is in place, which is needed for agriculture. The Ireland which joined the European Union in 1973 is different from the Ireland of today when agriculture does not have the same profile in the national economy. However, it is still an important part and still important that we defend our agricultural interests at EU level. Mainly for historical reasons, agricultural expenditure has taken up a large proportion of EU expenditure, as high as 80% at one stage, but this is changing because the elaboration of structural policies means more money is being spent on structural assistance to the poorer member states. Agriculture will not occupy the same profile in EU expenditure in the future as it has done in the past.

Deputy Quinn

If the total figures are approximately €500 million and €1.7 billion, what will be the per capita benefit? If one makes an assumption about the number of farmers directly involved in agriculture, what is the ratio of CAP spend to the population at large and what is the ratio of the non-compulsory spend to the population at large? For example, take the gross labour force, including the unemployed, and then the current figure of 6% directly engaged in agriculture. I accept that there are peripheral agricultural activities. This is an urban Ireland question. What is the split in the total amount?

Deputy Kirk

It is important to factor below-cost production into the calculation, if applicable in particular farm enterprises, as the calculation or estimation could be somewhat misleading in those circumstances.

Mr. Palmer

I would like to raise one matter on which some people have a misconception. Under the treaty and the financial regulation the only relationship between the expenditure of the EU and the income of the EU is that they must be in balance. Other than that — while there are always a few minor exceptions, which are always very strictly delimited in financial regulations — there is no relationship between the two. For example, Ireland does very well from the CAP. If the CAP were cut in the morning and the money allocated elsewhere there would be no guarantee that Ireland would get any of that. God forbid, when the CAP ends in 2013 or 2014 Ireland will probably be the biggest net contributor per capita to the EU.

Aside from agricultural and Structural Funds we are not getting much money in other areas. It must always be borne in mind that there is no relationship between expenditure and what we pay in. Expenditure is decided in the context of the financial perspectives and in the context of the detailed regulations for Structural Funds, comprising the various programmes like LIFE, EQUAL and so forth. Our access to those depends on how well we negotiate in the relevant committees and, particularly in relation to co-decision, how well our MEPs represent Ireland and ensure we have access to the various programmes and that the regulations suit Ireland.

Senator Quinn

They could not elect Mrs. Thatcher at that stage.

Proinsias De Rossa, MEP

The market is creating certain circumstances in agriculture whereby farmers are compensated and get income support. The EU does not provide income support or financial support to workers affected by market conditions in the textile industry, which are driven by the European Union, as we have heard in the news this morning. It is possible to argue for and against opening our markets. However, the impact on the individuals concerned is clearly significantly different as between the textile worker and the farmer, either big or small. It is not an argument against CAP or against farmers getting assistance; it is an argument over the imbalance in the manner in which different categories of European citizens are treated.

Mr. Burke

I would like to make a final comment on this matter. As has been said, the gross transfers under the CAP are approximately €1.8 billion per year. I will break these down and point to the dangers of comparisons. Of those transfers, approximately €1.3 billion are in the form of direct payments, which can be easily translated into an average payment. The most recent figure the Department has for average direct payments to farmers is approximately €13,000 per year. Approximately €300 million is in the form of market supports and export subsidies, which do not go to farmers. Export subsidies would be paid to export our product to third countries. Ultimately, the benefit is to farmers, but it cannot be identified easily as income in their pockets.

The final aspect relates to the rural development programmes including REPS and others in which the farmer must do something to get those payments. There are degrees and variations of incomes. To make a simplistic comparison between the transfers divided by an average figure would be very dangerous and I am not sure what it would prove.

I would like to reiterate a point that has already been made. The CAP as a percentage of the EU budget is in decline and very large proportions of it are now fixed. Direct payments are fixed for the future based on entitlement under the single payment. Direct payments will not increase in the future and will actually reduce, as they are not index linked. The market support measures such as export subsidies will also decline because EU prices will equate closer to world market prices due to CAP reform. We will be exporting less and with WTO commitments the export subsidies will need to be reduced anyway. As those payments will be in decline, we will depend on the outcome of the negotiations on the financial perspective for our transfers on rural development.

I will not repeat everything that has been said. The CAP provides huge transfers to us annually, which make the difference between being net contributors and beneficiaries. They will be fixed from now on and will probably be in decline.

Chairman

As we still have some way to go, perhaps Mr. Burke could continue.

Mr. Burke

There was a detailed question about a single farm payment. We have sent out the entitlements of farmers in the past fortnight and the vast majority appear to be happy with them. However, quite a number of force majeure cases exist, which by definition are exceptional cases and will be judged on their merits. An appeal procedure is in place and the maximum possible financial provision has been made for those cases, which means a linear reduction on the payments of all other farmers. There will be a 3% reduction across the board to meet the force majeure cases. I must confess I am not absolutely certain as to the reply to the question from Ms Doyle, MEP, about the oral hearing in the appeals process. My understanding was that the appeal process would involve an inspection on farm where there was a dispute and that, by definition, would involve an oral hearing where the inspector would meet the farmer. I will have to check on that last point.

Deputy Kirk

Has finality been brought to the force majeure questions? Has any target been set?

Chairman

Many questions are still outstanding on the issue.

Mr. Burke

No. There is no absolute cut-off date. We have tried to deal with them as efficiently as we can. There is no final date.

Mr. Nolan

Deputy Harkin raised two questions, one of which concerned the 1% new proposal from certain member states. She also referred to the UK rebate, as did Deputy Haughey. I will take those questions together. Regarding the 1%, six member states want to see European Union expenditure capped at 1% of EU GNI. This compares with the Commission's proposal, which would have EU expenditure in the period 2007 to 2013 coming in at 1.14% on average.

Ireland's line is that while we believe in the value of budget discipline, we also believe in the value of funding agreed EU policies. We will consider each of the EU's detailed proposals and determine the value and purpose of such proposals. We will not look for this to be 1% or 1.14%, as we do not believe that approach serves us best at this stage. We commenced this process during our Presidency. We want to look at each individual proposal on its merits and see what added value it brings. While at home we must concentrate on budgetary discipline, we must also fund necessary and agreed policies. The same dual approach should apply at EU level. We should look at the proposals, see what added value they would bring and what they would cost.

While the six member states have agreed that expenditure should be capped at 1% they have no agreement between themselves as to how the 1% cap should be effected. The French do not believe the 1% cap should cut the agricultural budget. I do not believe that Germany, which would stand to get considerable structural assistance for the former East German territories, wants to see Structural Funds cut. The six members do not necessarily form a completely homogenised and unified group.

As Deputy Haughey pointed out, the UK rebate has existed since 1984. At that stage the UK was one of the poorest member states of the then European Community. Most EU expenditure went on agriculture. The UK basically made the point that it was relatively poor and making a large net contribution to expenditure going to other countries, which was unacceptable. It secured agreement to the rebate in the circumstances prevailing in 1984. We will give the Oireachtas information about that shortly. I do not doubt that we will talk to the committee about it again.

The Commission has proposed that the UK rebate should be phased out and that a general correction mechanism, which would apply not only to the UK but to all member states regarded as making excessive net contributions, be put in place to mitigate such contributions. There will be long and arduous negotiations about the Commission's proposals. I do not envisage that agreement will be reached until the very end of the negotiations.

Mr. Palmer

The committee has asked about various cuts made by the Council in its first reading, for example, to the Dublin foundation and various aspects of the EQUAL programme. There is not much sympathy for the Dublin foundation or any of the agencies, to be honest. One will find that all the agencies will receive some cuts. I assure the committee that the Dublin Foundation did not suffer the worst cut. We do not put a great deal of effort into this area at my level or above for the simple reason that it is not our responsibility, but that of legislators. Heading 3 is pretty much the preserve of the European Parliament. The only hope for the Dublin Foundation, if it wishes to get its money back, is through the Joint Committee on European Affairs, which can lobby COBU.

Proinsias De Rossa, MEP

It is a good tactic to throw us a bone in order that we can spend our time fighting over that rather than fighting over something that you want.

Mr. Palmer

As Mr. Nolan outlined in the original presentation, the first reading of Council is a statement. We make silly cuts and so forth. As it happens, I voted against it on behalf of Ireland at my level but once the QMV is there, we roam with the rest of the Council. Therefore, we are not divided in our dealings with the Parliament. I guarantee the committee that the Parliament, in its first reading, will not only restore almost all the cuts we made in the PDB but will almost exceed them.

Proinsias De Rossa, MEP

We have done.

Mr. Palmer

That is the nature of the game, which will be serious in the second readings. One of the improvements under the new constitution is that there will be just one reading, which will cut out this posturing.

Proinsias De Rossa, MEP

I have raised the specifics here to demonstrate that this is not just some arcane exercise at a certain level. It has effects on the ground for European institutions and individual groups and programmes which operate here and in other member states. We need to take a keen interest in the detail as much as in the global aspect — defending this or that corner — for that reason.

Mr. Palmer

Absolutely. My job on the committee involves constant assessment of whether certain policies or budget lines have implications for Ireland. If so, I try to defend it. I need help, however — I need the Dublin Foundation to explain why something is terrible and why it needs money. I will do what I can on the committee but I may lose there, to be honest, because I may not get much sympathy. At least I have the ability to warn Members of the European Parliament, who can start to work on it. That is ultimately where heading 3 will be solved. The same is the case in respect of agriculture. If we have to do the battle completely at Council level——

Proinsias De Rossa, MEP

In Ireland, the debate is always about CAP——

Mr. Palmer

True.

Proinsias De Rossa, MEP

——and not about the Dublin Foundation, the DAPHNE and EQUAL programmes or discrimination.

Mr. Palmer

We can make cuts in the budget, but I always have to operate on the principle that the EU budget is in place to support the policies of the Union. Deputy Quinn might be interested in a difference between that and our system in Ireland. No expenditure can occur on EU programmes unless there is a legal base for it. There must be an actual regulation. Under our system, the passing of the Appropriations Bill each year is the legal base for the money, in effect. There might not be a detailed and separate Act of the Oireachtas to determine how the money can be spent under a particular programme.

Chairman

Members who asked questions earlier have been patiently waiting for answers. Perhaps the delegation will confine its comments to such replies.

Mr. Palmer

Deputy Ó Snodaigh asked about money for nuclear power. I admit that I am not an expert on this matter, as the Department of the Environment, Heritage and Local Government is Ireland's representative on the nuclear safety committee. I understand that the money in question is being provided for nuclear safety and that most of it — indeed, there will be more again under the FP — will be spent on studies and the future decommissioning of nuclear plants in eastern Europe which are regarded as unsafe. Mr. Nolan will speak about the pre-accession strategy.

Mr. Nolan

Deputy Ó Snodaigh referred to three pre-accession strategies and asked whether they were specific to certain countries. The answer to his question is "No". I will briefly speak about the three strategies to which he referred. The strategy which assists pre-accession countries in getting their agricultural sector ready for EU membership is known as SAPARD. ISPA is a pre-membership version of the Cohesion Fund. Essentially, it supports the same type of projects as the Cohesion Fund, such as transport and environmental infrastructure, in countries which are preparing to join the EU.

PHARE is a strategy for technical assistance, under which we provide expertise and advice. Advisers from the existing EU member states worked in the new member states before the enlargement of the Union. They provided their own technical expertise to the countries which were getting ready to join the EU. Funds were provided under the PHARE programme to enable three people from the Department of Finance to go to Estonia, Slovenia and the Czech Republic to help those countries to prepare their administrative systems. The officials in question shared Ireland's expertise in availing of structural assistance.

Deputy Quinn

This has been a useful exchange. Many more questions could be asked. I do not know if the Chairman has considered how we might continue this process at a future date.

Chairman

I would like to ask another question before we consider our future plans. A document I read on external policies referred several times to "the flexibility instrument". Can Mr. Palmer explain that?

Mr. Palmer

We have spoken about financial perspectives, which are included as an annex in the inter-institutional agreement between the Council, the Parliament and the Commission. The Council's legal service describes it as "soft law" — it is not a regulation, but a contract between the parties on budgetary discipline in which they agree to respect the ceilings in the financial perspective.

It is clear to everyone that flexibility might be needed in that regard at certain times, however. One might need extra money because something might happen after one has pre-programmed one's spending under various headings. I refer to developments such as those in Iraq, Afghanistan and Kosovo in recent times. In the absence of agreement on re-prioritisation, which tends to be difficult because there are many sectional interests among the various member states, we have the facility to use the flexibility instrument.

Under the inter-institutional agreement, the Parliament and the Council must agree on making a proposal to the Commission to use the flexibility instrument. If they reach such an agreement, they are promising to pass an amending budget to put the money physically on the line.

Chairman

When is the amending budget allocated? Is it allocated mid-term or at the end of the year?

Mr. Palmer

It is supposed to be used in the course of the budget procedure. One of the common misconceptions about it is that it is for expenditure that could not be foreseen. The agreement actually states that it is for clearly identified expenditure which cannot be financed within the ceiling.

Chairman

I would like to ask a technical question. Under our national system, the ambit of a Vote is set out and the subheads are then set out. There can be a transfer of funds between subheads in certain cases. Is there a facility in the EU budget for unused funds under one subhead being transferred? What is the procedure in that regard?

Mr. Palmer

There is a detailed virement system in the financial regulation, similar to the system we use. It allows for transfers between budget lines within the same chapter etc. It is important to differentiate between the budget system and the financial perspective, to which the Chairman is referring. The budgetary system has its own nomenclature, chapters, articles and budget lines, of which there are 31, each of which applies within a specific policy area. Various rules govern how one can make virements. The financial perspective is a voluntary agreement which is separate from the budget legal system. Each of these, of which there are 31, is in a specific policy area. Various rules govern how one can make virements and the financial perspective, to which the Chairman is referring. The financial perspective is a voluntary agreement separate from the budget legal system.

Chairman

Who has authority in the area of virements?

Mr. Palmer

It is complicated but everything must go through the Commission. It proposes the virement and the matter is decided by the Council and the Parliament following the same rules. The final word on compulsory expenditure lies with the Council, whereas the final word on non-compulsory expenditure lies with the Parliament.

Chairman

It goes through a process of agreement.

Mr. Palmer

Yes.

Deputy Kirk

How is the emergency funding for the flexibility fund decided? If, for example, major, unanticipated demand for drawdown from the flexibility fund arose, what would be the mechanics for providing the funding?

Mr. Palmer

It is very simple. This year, it was proposed that we finance €115 million of the €200 million allocated for Iraq next year using the flexibility instrument. If that is agreed, the €115 million will be added to the commitments side of the budget and the money can be committed. As to whether one needs to add money to the payments side of the budget to pay for it depends on whether payments start arising. In the context of a budget of €100 billion, the figure in question would not be a significant sum. As there would usually be slack somewhere else, it is highly unlikely one would need extra money. It is exceedingly rare that amending budgets, which we notify to the committee, add expenditure to the budget because there are usually more than enough payments involved. Ironically, this may be the case this year for a change given that, as Mr. Nolan noted, the Commission is considering seeking additional money for Structural Funds.

Chairman

At what stage during the year does the Department become aware of what will be our GNI contribution?

Mr. Palmer

That is simple. The PDB includes a series of tables at the front about revenue, which show what we will pay for the given level of expenditure being proposed. This has been modified for the Council's first reading. When the budget is finalised and each amending budget is added to it, it is immediately possible to amend these tables to show us exactly how much will be drawn down from Ireland on that side.

Chairman

Is the figure the same as our GNI for the previous year?

Mr. Nolan

The advisory committee on own resources made up of all member states meets every year to try to forecast what will be the GNI for the following year. This forecast, which will have been made last year, will be repeated this year, for example, to forecast Ireland's GNI in 2005. The figure is then fed into the budget Mr. Palmer has been discussing and forms the basis of our contribution.

Chairman

Is it adjusted for actual expenditure later?

Mr. Nolan

Yes. At the end of 2004, we will have to make what we call a balancing payment. The statistical offices throughout the European Union produce the final national accounts each year, for example, 2003, in October of the following year. It is at this point that we learn what Ireland's GNI has been for 2003. Member states make an extra payment or receive a refund depending on whether GNI is larger or smaller than the previous year.

Deputy Harkin

As regards the Stability and Growth Pact, I asked a question about the role of public private partnerships on which an agreement was reached recently. As Mr. Nolan stated he was not an expert in this field, it is fine if he wishes to get back to me on the matter.

Deputy Kirk asked whether there had been cases of local authorities dealing directly with Brussels in the area of funding. I understand, although I may be wrong, that Merseyside in the United Kingdom managed to do this.

Deputy Quinn

I would like to elaborate on public private partnerships. I understand the Statistical Office of the European Communities in Luxembourg has changed the way in which PPP contracts will be considered. Currently, if one enters into a hire purchase agreement to pay €20,000 over 20 years, one's outlay for the year is €1,000. EUROSTAT, however, has determined that one's accrual indebtedness of €20,000 must be recorded in one's accounts for year one of the project, which would cause one to breach one's borrowing requirement. I understand Deputy Harkin's question refers to this purely methodological change. It will mean, for example, that the National Roads Authority could borrow more money under public private partnerships without being subject to the budgetary constraints arising from the manner in which calculations were made previously.

Deputy Harkin

Such a change would have a major impact.

Chairman

Perhaps the delegation will forward us a note on the matter. At the outset, I stated the document the delegation submitted to us was very lucid and helpful and many members have expressed similar sentiments. The replies to questions have been equally lucid and helpful and I thank Mr. Nolan, Mr. Palmer and Mr. Burke for their assistance in explaining these complicated issues in such a lucid manner. These issues were referred to us by the Sub-committee on European Scrutiny. We will inform the sub-committee that we have noted the instruments and examined the Departments of Finance and Agriculture and Food.

Deputy Quinn asked how we could build on this process. This is the second year we have performed this task. It could be very useful to have a mid-term review to ensure we not only examine the budget as it is being prepared but meet twice a year to examine how the budget is being spent and get an update from the Department. This would be a very useful exchange as this morning's meeting has shown. Is that proposal agreed? Agreed.

Deputy Kirk

Does the Department of Finance have a summary, explanatory document on the mechanics of the budget and its relationship to member states? On Deputy Harkin's point regarding regions being in a position to deal directly with the institutions, in the context of the division of powers between the Commission and member states is it possible for local area plans to be funded directly from Brussels?

Chairman

Will the delegation send us a note addressing the issues the Deputy has raised? We will ask the committee secretariat to contact the Department to arrange a mid-term discussion, while this discussion will take place annually. I thank the delegation.