Two leading economists are set to challenge State funding for horseracing, which will this year come to €56 million.

In a paper to be delivered today, Economic and Social Research Institute (ESRI) professor, Tony Fahey, and his colleague, Liam Delaney, will question whether the current means of State funding for the sport can continue to be justified.

Their paper states that last year's funding of €54.68 million came to €38 for each of the 1.4 million people who attended race meetings in this country during 2005.

The figure was 29 per cent of the Department of Arts, Sport and Tourism's total sport budget.

The economists will tell the ESRI's pre-budget conference, that between 1995 and 2006, the horseracing and gambling industries changed from being contributors to the Exchequer to being beneficiaries.

The paper explains that the Horse and Greyhound Racing Fund was established by legislation in 2001 as a State-backed means of getting a return from bookmakers, and passing the benefit on to horse and greyhound racing, but argues that it no longer serves this purpose.

The fund's annual value was set at a figure equal to the return to the Exchequer from excise on off-course betting during 2000.

This was to be increased from year-to-year in line with inflation. Horseracing has received the larger share of the available cash.

The legislation included a provision stating that the Exchequer would make up the difference should the fund fall short. The Government is committed to supporting the fund until 2008.

Excise on gambling was enough to provide the €58.9 million paid out of the fund to racing in 2001 and the €68 million paid in 2002.

However, in response to the growing level of tax-free internet gambling, the Government has cut the levies imposed on off-course betting from 5 per cent in 2001 to 2 per cent in 2002 and to 1 per cent this year, the paper says.

It has also eliminated the 5 per cent paid by bookmakers who operate on racecourses.

This has left the Horse and Greyhound Racing Fund short. In 2003, taxes on gambling dropped to €48 million from €68 million, while the State gave horse racing €51.35 million. Similarly, in 2004, gambling contributed €38.42 million to the Exchequer while horse racing received €53 million.

Last year, gambling earned the Exchequer €45.55 million, while racing received €54.68 million.

Mr Fahey and Mr Delaney state that the fall in the tax take from betting has created a situation where the Exchequer is forced to supplement the fund from general taxation every year.

"This intensifies the questions that arise about the justification for State funding, particularly at the high levels that have been in place in recent years," they say.

The ESRI is an independent body partially bankrolled by the Exchequer.