State's estimated £1 bn contribution to EU in 2006 may rise by £160m

Ireland's annual contributions to the EU budget, already estimated to rise from £630 million this year to over £1 billion in 2006, may be further increased by £160 million by then if proposals published yesterday by the European Commission are backed by member-states.

However, with EU structural funding for Ireland also set to fall sharply in the next EU budget period, Government sources say such changes in the contribution system will be strenuously resisted.

Responding to German demands for a rebate on its substantial net contribution, the Com mission has set out a series of controversial options for reform or rebalancing of the so-called "own resources", or budgetary contributions system of the EU.

The first shots in what is expected to be a bitter fight between member-states over the issue were fired yesterday at the Commission meeting in Strasbourg. Commissioners from Ireland, Greece, and Spain warned of the divisive effects of options set out in the paper, particularly on EU solidarity and cohesion.

The Irish Commissioner, Mr Padraig Flynn, said he was particularly worried about the option to require member-states to come up with a quarter of CAP direct income payments to farmers, which would be "a radical departure from existing policy on the CAP". He asked for his protest to be noted in the minutes.

The proposal that member-states should co-finance CAP direct income payments to farmers would cost Ireland some £80 million in 1996, rising to £160 million in 2006.

The report calculates that this approach would leave Germany £530 million a year better off by 2006.

But with the proposal likely to cost France some £510 million a year at the end of the budget period, few believe it will secure the unanimous backing it requires.

Yet the option of cutting expenditure rather than reforming the income side of the equation is seen by many as the most likely approach to be taken by member-states looking for redress on budgetary imbalances.

The Commission has avoided becoming directly embroiled in the dispute by refusing to make a recommendation in its paper, but the tone of the document makes clear it would prefer retention of a system which it argues is reasonably equitable.

Presenting the report to the European Parliament, the Commission President, Mr Jacques Santer, said the fact that Agenda 2000 did not foresee any increase in the overall budget ceiling should mean they were not under any immediate pressure to change the EU's "own resources" system.

Other options in the report include a Spanish proposal to introduce a form of progressive GNP resource based on states' ability to pay, abolition of the special British rebate, and forms of generalised rebates to member-states which make net contributions to the budget.

The Spanish proposal, supported by the Portuguese, would have cut Irish and Spanish contributions in 1997 by some £35 million and £640 million respectively, while increasing Germany's by £800 million. The alternative, various forms of rebates on net contributions, are calculated at costing Ireland between £114 million and £45 million in 1999.

A British spokeswoman said they would completely oppose any suggestion of abolishing their rebate, or "abatement". "The abatement was justified, remains justified and we will fight to retain it," she said, adding that the UK favours a general reduction in CAP payments.

Mr Flynn argued to fellow commissioners that "up to now the Commission has always insisted that Community membership should not be viewed in terms of the balance of contributions and receipts under the Community budget, but rather in terms of the overall benefits, most of which are not reflected in the Community's budgetary figures".

From an Irish perspective the argument is a crucial one. On the one hand the benefits to countries such as Germany of access to the single market are unquantifiable, with the result that cash calculation of the country's net benefit from EU membership deeply understates the reality.

On the other, a large part of Ireland's receipts from CAP come in the form of export refunds and are, in effect, a subsidy and benefit to all EU farmers. Mr Santer told MEPs he hoped the Commission paper would facilitate a "difficult and politically delicate debate". He attacked the case for a continued special British rebate as "increasingly unjustifiable".