EU set to miss deadline for budget overhaul plan

Flags are reflected in a window at the European Council building, a day before European Union heads of state summit, in Brussels June 18, 2008.

BRUSSELS (Reuters) - The European Commission will miss a deadline for proposing a plan to overhaul the European Union budget this year because its president is still putting together his new leadership team, EU officials say.

EU leaders agreed four years ago that the Commission, the 27-country bloc's executive, would by the end of 2009 present ideas for reforming the budget, addressing issues such as high farm spending and a rebate that Britain receives from EU coffers.

The budget debate is always tough but will be especially hard now because of calls for a thorough overhaul which could affect British and French budget privileges. Any delay will limit the time member states have to resolve difficult disputes.

The proposal on the budget, which is worth some 125 billion euros (112 billion pounds) annually, has been postponed several times because of concerns the fierce debate around it could get in the way of ratification of the EU's Lisbon reform treaty.

The treaty has now been ratified, but EU officials say Commission President Jose Manuel Barroso has decided to put off making the budget proposal until next year.

Barroso, who was elected in September to a second five-year term, is now allocating jobs in the new Commission, which he says should be in place by the end of January.

"It will be up to the new Commission to make a proposal on the budget. It makes sense, as in this way the proposal will have a stronger mandate," said one Commission official.

Another official said Barroso did not want the budget debate to overshadow or complicate approval hearings in the European Parliament on nominees for the new members of the Commission.

TOUGH DEBATE AHEAD

New budget rules are to take effect from 2014 after the current EU long-term budget ends. The proposal is likely to be part of Barroso's "European Union 2020 strategy," a plan to reinvigorate the EU's economy.

A leaked draft proposal showed last month that the Commission wanted to shift spending away from agriculture towards innovation, energy and tackling climate change.

This would be sure to irk EU farm aid beneficiaries such as France, Ireland and Poland, but please countries eager to spend more on research and innovation.

Agriculture accounts for more than 40 percent of the EU budget and France is a big beneficiary because many of its farmers are eligible for subsidies.

The Commission's draft said the current, complex system of collecting the budget should be radically simplified, possibly by linking it to a new or old tax or levy. Proceeds from the sale of allowances for greenhouse gas emissions could be such a revenue source, it said.

The draft also called for the scrapping of Britain's rebate, worth billions of euros a year. It was won in 1984 by the then prime minister, Margaret Thatcher, who said Britain made disproportionately large annual contributions to the EU budget.

This proposal is likely to anger Britain's Eurosceptic Conservatives, who are expected to win a parliamentary election due next year. But much is still to play for and a Commission spokeswoman said the final proposal could differ greatly from the leaked draft.

(Editing by Mark Trevelyan)