The European Commission has proposed a €900 billion budget for 2007-2013, ignoring calls from six of the richest EU member-states to cut spending and setting the scene for 18 months of tough negotiations.

Presenting the proposal at the European Parliament in Strasbourg yesterday, the Commission president, Mr Romano Prodi, said the budget represented the cost of putting into practice policies agreed by the EU member-states.

"In the coming years the European Union needs to improve growth and competitiveness, provide for more and better jobs, protect the rights of citizens, and offer them more protection against crime and illegal immigration," he said.

The Commission's proposal respects the upper limit on spending of 1.24 per cent of the EU's Gross National Income (GNI) and envisages spending an average of 1.14 per cent of GNI each year. Germany, France, Britain, Sweden, Austria and the Netherlands - the six biggest net contributors to the EU budget - wanted spending capped at 1 per cent of GNI.

The EU member-states will respond to the Commission's proposal by June but final agreement on the financial perspectives, which also require the approval of the European Parliament, is not expected until June 2005 at the earliest.

Ireland's commissioner, Mr David Byrne, called for "a rational debate" about the Commission's proposal, which he said was consistent with a commitment to making EU enlargement work.

"There is absolutely no point in having an ambition to engage in enlargement without paying for it. It can't be done," he said.

Mr Byrne warned that an attempt to lower the ceiling on spending could call into question an agreement to maintain spending on agriculture close to its current level until 2013. Farm subsidies and regional funds account for almost 80 per cent of the EU budget, a proportion that would remain stable until 2013 under the Commission's plan.

Ireland, which has received more from the EU than it has paid into the budget every year since accession in 1973, is expected to become a net contributor to the EU budget within a few years.

Mr Byrne suggested, however, that money spent at a European level was good for Ireland, not least because of the open nature of the national economy.

"It must be in Ireland's interest to be more on the generous side than not," he said.

The Commission's proposal includes a suggestion that the sources of EU funding should be reconsidered to make the system more transparent.

At present, the EU is funded partly by agricultural levies, customs duties and a share of VAT but 73.4 per cent of the budget comes from contributions from member-states based on GNI.

The Commission suggests that the GNI-based contribution could be reduced by giving the EU a share of corporate tax and energy tax levied in member-states.

Mr Byrne insisted, however, that no change in the source of funding could come into effect until 2014. "It doesn't mean anything," he said.

The Minister of State for European Affairs, Mr Dick Roche, told the European Parliament that the Irish Presidency would start discussions on the budget plan but the Government has yet to adopt a formal position.

Britain, Sweden and Germany were quick to condemn the Commission's proposal, with Germany's finance minister, Mr Hans Eichel, suggesting it would oblige his government to cut spending in its own impoverished regions.

"When we have to send more money to Brussels, I need to find it from somewhere else," he said.