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Subsidies are payments by Government (or the European Union) to producers of goods and services. Subsidies are given to producers because the Government wants them to make more of their product, to make their product a certain way, to sell their product at lower cost, or to hire more workers.

Subsidies are divided into Product Subsidies and Production Subsidies.

Product Subsidies are paid per unit of the good or service which is produced. These are paid regardless of who is doing the producing, and so in National Accounts, we do not attribute the payments to any particular Institutional Sector: the recipient is Not Sectorised. Product Subsidies paid by the Irish Government include subsidies for public transport (for example, those paid to Dublin Bus), subsidies on health insurance (paid via a tax credit), and subsidies on third level education paid to universities and colleges of technology.

Production Subsidies are paid to producers, such as corporations and households, for engaging in production. The Irish Government pays Production Subsidies for farm modernisation, for afforestation, for horse racing, for community services for disadvantaged people, and for providing employment to disadvantaged groups. The European Union also pays production subsidies: most of these coming into Ireland relate to agriculture. EU subsidies to Ireland are only slightly less than the Irish Government’s.

Subsidies are different to Social Benefits, which Government pays direct to workers and not to the employer. Government payments to cover shortfalls in pension funds of semi-state bodies are considered Other Transfers and not subsidies. Payments by Government to cover damage from natural disasters are not subsidies either: they are Miscellaneous Transfers or Capital Transfers, depending on the kind of damage that they are covering.

Production Subsidies are subtracted in the transition from Factor Cost to Basic Prices, and product subsidies are subtracted in the transition from basic prices to Market Prices (these transitions also adjust for Taxes).

Read next: Capital Formation

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