Speaking to the European Parliament just before Christmas, the Austrian chancellor Wolfgang Schüssel promoted an idea that has floated around the European Union for years, thus far without making any headway – an ‘EU tax’.

This would be paid, as usual, to national revenue or customs organisations, but proceeds would be earmarked for Brussels. Schüssel suggested a new tax might be levied on investors’ short-term profits or on international travel.

Although he gave no further details, the idea has sparked more than the usual interest in such musings and there is a good reason – the protracted agony over setting the 2007-13 budget.

Giving the EU some guaranteed income would help take the sting out of these difficult discussions, so the theory goes. As a result, member states have agreed that proposals to reform the EU’s ‘own resources’ system, through which national governments send money to EU budgets, will be part of an agreed review of financing in 2008.

The European Commission is preparing for this debate, but is being careful in this most diplomatically sensitive of areas. Budget commissioner Dalia Grybauskaitë says in the (European) Parliament Magazine: ‘We cannot allow ourselves to make the same mistake as with the services directive. We let the question become highly politicised; we frightened people. And finally, what we have is a weakened compromise. We should avoid such a future.’

And the stakes are indeed high. Many EU governments (especially Britain) are worried that an EU tax, once installed and in operation, might be the thin end of the wedge, a forerunner of harmonised taxation system and rates throughout the 25 EU member states.

The Austrian presidency confirmed talks would start when the 2008/09 budget is discussed, probably towards the end of 2007. Under the recently agreed medium-term budget deal for 2007-13, ‘there is the possibility of introducing an EU tax which would be fiscally neutral - it would not raise additional money’, says a Vienna spokesman.

‘We think the idea will get greater backing from the EU council of ministers within the next few years.’

Echoing her commissioner’s warnings about political sensibilities, EU budget spokeswoman Maria Assimakopoulpou said the EC would try to avoid leaving its fingerprints on such proposals.

The commission had not taken any new position since its report of July 2004 in which it outlined three candidates for an ‘EU tax’, she notes. The three relate to energy consumption, VAT and corporate income and if Brussels had its way, the EU would start to receive revenue from these sources in 2014.

But pressure will come from the European Parliament. One of the most tireless crusaders for an EU tax is the French MEP (from President Chirac’s UMP party) Alain Lamassoure, of the budgets committee.

Lamassoure is taking soundings in all 25 EU national parliaments and will present a report in the autumn. In a working paper, he argues a dedicated energy tax based on road transport fuel would be technically possible in around three and six years, and would be relatively simple to administer and finance half of the EU budget, even with rates half current minimums.

A VAT-based tax could be ready in six years and at 1% would cover about half the EU budget. Finally a corporate income based tax could be created, although this ‘would need a common consolidated tax base with a minimum tax rate instead of 25 separate national tax systems and a multiplicity of tax laws, conventions and practices’. Less than a quarter of its revenue would need to be assigned to the EU.

‘Generally speaking it’s going too far to say there’s a majority in favour of this approach,’ says Jean-Yves Loog, budgets committee spokesman. ‘Perhaps it may involve 50 to 60 out of 732 members so it’s not a problem for most members,’ he argues.

The main problem could be persuading the UK government to yield over an area that requires unanimity among EU member states to proceed. ‘Taxation is a matter for individual states. An EU tax would be deeply unpopular and would undermine democratic legitimacy,’ says a Treasury spokesman. Nor would Britain be alone.

‘The general mood in the EU is probably that this is not something that anybody is seriously considering,’ he claims.

And if the EU tax led to calls for tax harmonisation then Britain would be even more resistant. ‘We think that fair tax competition is the best way forward if we want to be competitive. We don’t think it is an answer to the challenge of

globalisation, or to the rise of Asian or Latin American markets. We need more tax competition, not less.’