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FINANCIAL INSTRUMENTS OF STATE SUPPORT PROVIDED TO ENTERPRISES IN EUROPEAN UNION COUNTRIES
Skok P. O., PhD in Public Administration
Ukraine, Kyiv, Academy of Municipal Administration Associate Professor of Finance, Banking and Insurance
ABSTRACT_
The article talks about the dynamics and structure of using main financial instruments of state support provided to enterprises in EU countries. General principles and regulatory provisions, which govern application of financial instruments of state support provided to enterprises in EU countries, are outlined. Classification of forms and trends of state support provided to enterprises in EU countries is presented. Amounts of grants and subsidies allotted to the enterprises in EU countries within the horizontal support framework for the period of 2010-2015 have been analyzed. Geographic structure of financial instruments application as the state support of enterprises among EU-28 countries has been analyzed. Priority trends of financial instruments application as the state support aiming at removing structural imbalance and unevenness of economic development in EU countries have been specified.
Introduction. Challenge of ensuring consistent economic growth is becoming more and more crucial, especially from the prospective of the significant threats to the rapid globalization of social and economic development. Numerous factors influence economic growth, in particular state regulatory mechanisms. Taking into consideration money market deregulation, growing dependence of the countries on loans from financial institutions and borrowing countries, increase of the role played by loans in a country development, determination of impact caused by financial and economic mechanism of state regulation on economic growth becomes really important.
Importance of applying developed countries' experience in order to boost progressive changes in domestic economy is explained by the necessity to change the structure of national production and export. Ukrainian economy requires the most successful strategies of developed countries with regard to financial and economic policy, which explains obligations incurred before international organizations, in particular WTO, as well as integration efforts of our country. Application of positive experience taken from the developed countries with regard to implementation of financial and economic policy will allow Ukraine to impact more efficiently the structure of national production and export, boost positive changes in such structures. The intention of Ukraine to integrate into European economic space determines the importance of researching the peculiarities of financial instruments application as the state support of production and export in EU countries.
Aim. The work aims at studying regulatory measures, practical experience, major trends and peculiar features of applying financial instruments of state support provided to enterprises in EU countries.
Results. In EU provision of state support to economic subjects is incompatible with the common market existence except for certain occasions set forth by article 107 of the Agreement on functioning of European Community:
- support of economic development of territories where the standard of life is especially low or where high level of unemployment is observed;
- support to implement projects, which are important for common European interests, or such that improve condition of the EU countries during the period of serious economic hardship;
- support directed at the development of certain kinds of economic activity or separate territories, provided that such support will not have negative impact on trade relations between the EU countries;
- support of cultural promotion and cultural inheritance protection, provided that such support does not impact the conditions of conducting trade and competition and does not pose a threat to the common interests.
ARTICLE INFO_
Received 17 February 2017 Accepted 25 February 2017 Published 10 March 2017
KEYWORDS
financial instruments,
subsidies,
grants,
tax credit,
financial and economic policy, state policy,
environmental protection. © 2017 The Author.
Based on the rules of EU the following principles of enterprises' state support for the EU countries may be outlined:
- support of separate economic subjects on a small scale. In EU this principle is expressed by the rule, according to which it is allowed to provide assistance to any economic subject in the amount of 200 thous. EURO for the period of time exceeding 3 years;
- support of enterprises that does not cause serious harm to the competitive environment. The most frequent support that is allowed in this respect is the support of small and medium enterprises, since such support causes less harm to market competition, while support of big enterprises is possible only in exclusive cases;
- financing of measures where the positive consequences prevail over the harm caused to the competitive environment. Such measures include state support of enterprises in problematic regions, financing of scientific-technical projects, promotion of production modernization in accordance with ecological standards, assisting enterprises in personnel selection and training, etc.
In EU, the European Commission carries the responsibility to exercise control over the legality of state support provided to enterprises. To exercise such control EU has the system of advance notification on state support measures. However, in certain cases the state has the right to not inform the European Commission about state assistance. This applies to the situations where support is horizontal, and its amount does not exceed a certain set figure. For example, support of fundamental studies carried out by enterprises may not exceed 20 mln. EURO per year, assistance for investments into energy saving technologies - 7.5 mln. EURO, and so on (Bulana, 2012). When it comes to any other state support of an enterprise, the country, which is the member of EU, has to notify the European Commission.
Efficiency of state support depends not only on its amount, but also to a high degree on the form of such support (figure 1). It is worthwhile mentioning that within the scope of provided support in the form of privileged credit and tax delay, not only privileged and participation loan from state sources count, but private loans as well, which does not prevent performance of true appraisal of state support exclusively.
the market
Tax credit where assistance
does not depend on the existence of tax obligation
Tax privileges where benefit depends on the existence of tax obligation
Decrease of social security
Fig. 1. Financial instruments ofstate support provided to the enterprises in EU countries (Melnychuk, 2011)
At the modern stage, more than 90% of assistance in EU countries is administered via direct government grants and tax privileges, differences between the countries lay only in the correlation between the assistance that is provided via budget or through the tax system and social security system. Utilization of other support instruments happens quire rarely. Logical explanation to this is the fact of the simplicity of assistance amount calculation in the form of direct government grants and tax privileges, hence "the value of the assistance equals its actual amount or its equivalent".
Herewith, there is no interrelation observed between the boundaries of tax expansion of a certain country, its tax system structure and amount of state assistance in the form of tax privileges.
Indeed, for the countries with high levels of taxation, such as Sweden, Denmark, Belgium the following is incidental: for Denmark and Belgium - low level of tax privileges within the total assistance framework using all the instruments, Sweden - on the contrary, high level of tax privileges. Similar situation is typical for other countries as well. This gives grounds to affirm that a matter of application of these or those instruments is first determined by the traditions of state influence on the economical development.
Activation of production support policy in EU countries took place due to world financial crisis. Key trends of such policy in certain European countries were the following:
- assurance of access given to small and medium enterprises to financial resources;
- rescue and modernization of enterprises, which are strategically important for the national economy. In many countries car industry enterprises received support in the form of loans with the lower than banking interest rates. Assistance was also provided for the design and creation of an automobile, which is loyal to the environment and will meet future ecological standards, that have already been adopted but have not come into effect yet;
- development and launch into production of "green" product (including via promoting appropriate scientific developments), support of energy preservation, rational utilization of natural resources and development of renewable power economy;
- favor export by means of facilitating the procedure of export risks insurance (Snihyr et all, 2012).
Looking at the state support of enterprises in the form of direct government grants and
subsidies in EU countries, it is worthwhile mentioning that they account for over 50 % of the total support amount. In particular, in 2015 direct government grants and subsidies amounted to 56.6%. For comparison, part of state assistance in the form of tax privileges that same year amounted to 34.6%. According to the performed calculations, we may come to a conclusion that other forms of state assistance provided to enterprises are utilized in EU countries to a much lower extent.
Beginning in 2011, amount of direct financial assistance provided to enterprises did not undergo significant changes, fluctuating around 40 bln. EURO mark. In particular, mid-point of direct government grants and subsidies in EU countries during the period under analysis (2010-2015), constituted 41.9 bln. EURO. Average growth rate of provided grants and subsidies for the period of six years was -6,03% (Table 1).
Table 1. Indicators of Dynamics of Grants and Subsidies Provision within the Framework of EU Joint Financial and Economic Policy for years 2010-2015 (Eurostat, 2016)
Years Amount of grants and subsidies provided in EU countries, bln. EURO Absolute changes, bln. EURO Growth ratios in comparison to the prior year Growth rates, % Increase or decrease rates, %
2010 36843,10 -25769,00 0,588 58,84 -41,16
2011 40267,40 3424,30 1,093 109,29 9,29
2012 42866,20 2598,80 1,065 106,45 6,45
2013 36468,20 -6398,00 0,851 85,07 -14,93
2014 36806,00 337,80 1,009 100,93 0,93
2015 37990,30 1184,30 1,032 103,22 3,22
Mean value 41979,04 -4103,63 0,940 93,97 -6,03
Analyzing the trend of an indicator of providing grants and subsidies in EU, we come to the conclusion that for the period of six years there was a tendency of decrease in financial assistance provision by the countries. This means that countries-members of EU gradually switch priorities in favor of other instruments of financial assistance, in particular tax privileges. To a certain extent, this tendency may be viewed as negative, because direct budget financing is considered to be the most transparent instrument of financial and economic policy of the state, with the amounts easily tracked.
In their turn among 28 countries that comprise EU, amount of grants and subsidies provided in 2010-2015 varies to a great extent. This is explained by different condition and structure of state budgets and their social objectives, different level of economic development of the countries, as well as priorities of administering financial and economic policy. When allocating grants and subsidies among the countries, it has been determined that the highest amount is allotted in France (17%), Germany (16%), Italy (14%) and Great Britain (7%) (figure 2.3). The lowest per cent of the total amount of provided grants and subsidies is found in such countries as Hungary, Portugal, Greece and others, each of which got less than 1% of the total amount of grants and subsidies (figure 2).
Regarding horizontal state support, in 2012 it amounted to 49.6 bln. EURO for 27 EU countries or 0.38% of these countries GDP.
Belgium; 2% Austria: 3°-g Czech, 3°/o ^Netherlands; A°/o b i ilamlJ>4%*
Denmark; 6%
Spain; 6°/o
Fig. 2. Percental distribution of state assistance in the form of grants and subsidies between EU
countries in 2010-2015 (Eurostat, 2016)
When administering different trends of state support in EU countries, significant differences are observed. For EU-15, support of environmental protection, regional development and scientific research is most typical (Table 2).
Table 2. Structure of Horizontal State Assistance Provided to Enterprises in EU countries for the period 2010-2015, % of the total horizontal assistance in the country (group of countries) (Eurostat, 2016)
Country For environmental protection and energy saving Regional development Scientific research and development Small and medium enterprises Personnel training Assistance in providing employment Other types of horizontal assistance
EU-28 29,0 24,4 19,0 5,3 2,2 5,7 14,4
EU-15 31,0 22,3 19,8 5,9 2,2 4,1 14,7
Belgium 24,1 7,5 33,4 16,9 3,1 10,8 4,2
Denmark 26,6 3,2 8,0 0,1 0,3 58,8 3,0
Germany 43,6 22,1 23,3 4,6 2,0 0,6 4,0
Ireland 10,1 41,1 16,3 4,6 4,7 2,8 20,5
Greece 0,4 97,3 0,2 0,6 0,0 0,0 1,4
Spain 37,3 24,2 29,6 3,7 0,4 0,6 4,2
France 2,4 29,9 20,3 8,5 0,6 0,1 38,2
Italy 3,6 34,5 22,7 10,5 13,2 4,3 11,2
Luxembourg 15,9 2,0 46,5 13,8 - - 21,8
Netherlands 67,2 1,0 27,1 1,3 0,0 - 3,4
Austria 68,7 7,4 13,2 5,9 1,7 - 3,1
Portugal 1,8 39,5 37,4 10,5 2,5 1,8 6,5
Finland 67,3 4,0 16,4 1,9 0,5 5,0 4,9
Sweden 88,2 2,8 3,6 0,0 0,9 0,0 4,5
Great Britain 37,7 6,5 22,3 7,6 1,0 0,1 24,7
EU-12 12,7 42,5 12,0 0,4 2,3 18,6 11,5
Bulgaria - 49,4 5,1 0,3 0,0 25,0 20,2
Czech Republic 5,2 69,7 21,6 1,0 0,5 0,0 2,0
Estonia 23,3 58,0 0,3 1,6 0,0 0,3 16,4
Cyprus 4,3 6,1 1,6 2,9 22,4 0,6 62,1
Latvia 4,6 7,6 0,3 0,1 0,0 0,2 87,2
Lithuania 5,8 65,6 7,5 2,6 1,6 8,0 9,0
Hungary 1,0 30,5 20,4 0,0 1,3 21,1 25,8
Malta - 53,3 2,7 0,3 10,3 22,0 11,3
Poland 0,4 43,6 5,7 0,1 4,4 43,8 2,0
Rumania 82,6 15,5 1,5 0,2 0,1 0,0 0,1
Slovenia 23,3 30,2 20,9 0,0 1,1 20,8 3,7
Slovakia 12,7 66,8 11,8 0,7 3,9 0,2 4,0
As one can see from Table 2, in countries EU-15 environmental protection and energy saving amounts to 31% of the total amount of horizontal assistance in this group of countries, regional development and scientific research and developments amount to 22,3% and 19,8% accordingly. Thus, the main objective of state support in these countries is promotion of those trends, which have significant positive effects for the economy and will allow to obtain additional competitive advantages in the future. So, state support of scientific and research developments and environmental protection is the main instrument to enhance competitiveness of European economy by means of innovative development. Among instruments applied for state support of scientific research developments, in EU budget financing is prevailing (80% of total state support by trend). In addition, privileged credits (11%) and tax privileges (9%) are also used.
State support of enterprises in terms of environmental protection is the element of EU policy with regard to providing resource and energy efficiency of economy, decrease of environmental impact caused by economic activity and development of new ecological production industries. Important trends in this kind of support is assistance to renewable energy production and energy efficiency program. This is connected to the fact that Lisbon strategy provides for achievement of the target "20/20" - decrease by year 2020 of C02 exhaust by 20%, increase of renewable energy production up to 20% and increase of energy efficiency by 20% (Samardzija & Butkovic, 2010). Due to this, this kind of state support of enterprises in EU is often used to assist technical re-equipment of large industrial enterprises, which greatly polluted environment.
Among the countries, which provide state support for ecological objectives at the level higher than average, are Sweden (88,2%), Austria (68,7%), Finland (67,3%), Netherlands (67,2%), Germany (43,6%), Denmark (26,6%), i.e. the countries comprising EU-15. However, for the countries EU-12 other priorities are obvious in the field of state support of enterprises. For instance, these countries in the first turn provide regional state support (42,5%) and assistance in providing employment (18,6%). This proves that for EU-12 at present the main task is to fight unemployment and level-off regional development.
Conclusions. State support has gained wide development in the practice of EU countries. Rules of EU state support represent an integrated mechanism, which ensures efficient allocation of budget and other resources of the EU countries to implement structural transformations in economy and enhance competitive ability of European Union common market subjects. Effectiveness of state economy regulation with the application of these rules is achieved through balancing objectives of industrial, competitive and budget policies. Protecting the market from competitive damage as a result of excessive state intrusion, these rules at the same time assist in streamlining various forms of the state support in order to resolve specific tasks, which lead to qualitative changes in sectorial and regional dimensions. General trends with regard to changes in state support provision in EU countries represent decrease in the amount of state support and domination of support to accomplish horizontal objectives. At the same time, significant differences exist among separate countries both in the trends of horizontal support implementation, and application of the support instruments.
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