First shots fired in budget reform debate - Main contents

The first shots have been fired in what is likely to be a bitter debate over reforming the EU's budget, with Germany and the UK already coming out strongly against tentative plans by Brussels on an EU tax.

EU budget commission Janusz Lewandowski i is towards the end of September due to table proposals for overhauling the way the EU finances itself and how the money is spent.

The reform proposal is to touch all of the issues that raise alarm in national capitals - including the budget-gobbling farm policy (a sacred cow in France amongst others), national rebate and the possibility of the EU raising its own taxes.

"The finishing touches are being put on the proposals, they will have numbers and be precise," said commission spokesperson Patrizio Fiorilli.

"Everything will be looked at, especially the weight of agriculture in the EU budget - currently 45 percent of spending - but also the rebates accorded to Britain, Germany, Denmark and the Netherlands," he added.

Mr Lewandowski put out feelers for ideas to introduce an aviation and financial tax in an interview published this week in the Financial Times Deutschland, indicating that he might have support for the idea from several capitals, including Germany, because member states are keen to reduce their national contributions to the EU budget.

However, both Berlin and the UK quickly rejected the plans.

A spokesperson for the finance ministry in Berlin pointed out an EU levy would breach the coalition agreement between the centre-right Christian Democrats the liberal Free Democrats, which expressly rejects an EU tax. "Nothing has changed" on this position, said the spokesperson.

Meanwhile, UK commercial secretary James Sassoon indicated London would block any such plans. "The government is opposed to direct taxes financing the EU budget," he said.

"The UK believes that taxation is a matter for member states to determine at a national level and would have a veto over any plans for such taxes."

The EU's budget, agreed for a seven-year period, and currently running until 2013, is financed by national contributions based on gross national income, as well as VAT and customs duties.

However, Mr Lewandowski is keen to point out that EU's founding fathers, who drew up the bloc's cornerstone Treaty of Rome, envisioned that the EU would finance itself predominantly from its own resources, such as direct EU taxes.

At the moment, national contributions make up around 76 percent of the EU budget.

Brussels wants to capitalise on the belt-tightening sentiment in many capitals by suggesting that national credit transfers are reduced in return for the Brussels administering a direct tax.

But the tax idea is not the only point of controversy. Member states are reluctant to endorse commission plans to increase the budget by 5.9 percent to €130 billion, including a 4.5 percent rise in the costs of running the EU's institutions. National governments believe a three percent increase is sufficient.