The European Commission will today present its proposals for an EU budget framework for 2007-2013, launching a two-year debate on the financing of the Union. The six member-states that contribute most to the EU budget have called for spending to be capped at 1 per cent of the EU's gross national income (GNI) but the Commission is expected to demand a limit of no less than 1.24 per cent of GNI.

The Commission will discuss the budget proposal for five hours today before the Commission president, Mr Romano Prodi, outlines it to the European Parliament in Strasbourg. The Commission remained divided on some aspects of the plan yesterday, including a proposal to change the way the EU raises funds from the member-states.

EU funds come partly from levies on the agricultural and sugar trade, customs duties on trade with non-EU countries and a proportion of VAT on the basis of the harmonised VAT base in the EU. The remainder is calculated on the basis of each member-state's GNP and the total is capped at 1.24 per cent of the EU's GNI, although the 2004 budget will amount to less than 1 per cent of GNI.

Ireland's Commissioner, Mr David Byrne, has been resisting a proposal to allow the EU to skim off a proportion of energy and corporate income tax and to increase its share of VAT revenue.

Sources close to Mr Byrne yesterday pointed out that, unlike VAT, corporate tax does not have a harmonised base in the EU.

The Commission is not expected to propose changes to its revenue base today but will consider various options during the next few months.

The Commission is adamant that the demand by Germany, France, Britain, the Netherlands, Austria and Sweden to cap the budget at 1 per cent of GNI is unrealistic in an enlarged EU. The president of the European Parliament, Mr Pat Cox, yesterday called for sufficient resources to be made available to ensure the integration of 10 new member-states.

"I am the first to defend value for taxpayers' money. But Europe cannot turn in on itself, cannot let the economic cycle dictate its strategic course. Maintaining the status quo when we are joined by 10 countries with incomes below the EU's average would create a funding decrease, at the same time as the scope and scale of our tasks expand."