Petr Mach has drawn attention to the impact of EU accession on the state budget. He has a point. There will be an impact. Payments have to be made to Brussels and the money that comes back will not all go to central government. At the same time, he exaggerates the problem and is wrong to imply that the Czech Republic will not make a net gain from EU membership.

Estimates from the Ministry of Finance suggest that the Czech Republic will receive more from the EU than it pays in. Resources coming in will be equivalent to about 1.7% of GDP while payments going out will be equivalent to about 1.3% of GDP over the 2004-6 period. The difference tends to increase after a slow start in 2004. This can be checked against figures from the EU itself which point to the same conclusion.

Payments to the EU are easy to calculate. They roughly depend on the level of GDP. There is less certainty over how much will be received. Some parts are easy to predict, but it is theoretically possible that more or less than expected will come from EU Structural and Cohesion Fund assistance (estimated at around 0.7% of GDP by 2006). Payment depends on approval from Brussels for the Czech National Development Plan -- and there is no serious doubt over that -- and then on public and private organisations coming forward with convincing proposals for projects. There has already been experience with the procedure, through so-called pre-accession aid, and a reasonable estimate of the financial implications can be made.

To guard against any danger, various safeguards have been negotiated in the form of `cash-flow' compensation and items of `additional compensation' to ensure that the Czech position is not worsened after accession. These shift the resources coming into the Czech Republic from the Structural Funds into payment that is absolutely certain. As a result, a net deficit with the EU is practically inconceivable and the published estimates of a significant net gain seem pretty reliable.

Further into the future the ability to take advantage of structural support can be expected to increase.

However, the exact implications for the state budget are not so simple. The Ministry of Finance has not even included this in its forecasts for the period after the expected EU accession in 2004. Taking just the payments to the EU against guaranteed revenues to central government, there would be an increase in the budget deficit of 1% of GDP. That, as indicated, will be more than balanced by benefits to those that gain from EU support in the targeted areas of infrastructure, business development, environmental and rural renewal and the like.

The figure may in the end be higher, but it could also be considerably lower. This relates in part to the EU principle of `additionality'. The origin was an obvious concern that EU money would be used as a substitute for domestic sources. It was therefore intended that it should be used to finance projects that would not otherwise have received support. In practice, however, this cannot be applied rigorously. EU money inevitably often finances projects that would have gone ahead at some time even without its support. By replacing other items of expenditure, this reduces the extent of the effective burden on the state budget of EU membership.

Another EU device to ensure that projects it supports really are needed is the requirement for `co-financing' whereby part of the finance must be found domestically. The amount varies for different programmes. This could lead to further costs to the state budget, on the assumption that co-financing comes from public sources. The hope is that much can be found from private sources.

There is, then, a point that needs to be clarified on the impact of the EU on the state budget. It has not been a major problem for other countries that have joined and it is likely to prove relatively minor when set against two more important issues;