Taoiseach Bertie Ahern successfully fought off moves to harmonise European tax rates in the troubled draft constitutional treaty for the European Union (EU).

But a new battle on taxation may now be looming after the Austrian Chancellor Wolfgang Schuessel suggested that the EU could part-fund its budget with a levy on international financial transactions.

Such a tax is unlikely to find support on Merrion Street. It would hit Ireland harder than most EU members, given the very high level of international transaction in the IFSC in Dublin.

Yet Mr Schuessel, who takes over the EU's rotating presidency at the end of this year, said said it should not continue to be the case that "every euro that we need for [ the EU] is drawn from national budgets".

Interviewed in the German newspaper Bild am Sonntag, he said fundamental budget reform was required to that provide the EU with its own source of cash.

"I suggest there should be an automatic financing mechanism for part of the EU budget - for example through taxation of international financial transactions," he said.

About half the EU's budget, worth €106.3 billion in 2005, is paid for by contributions from member states based on their gross national product (GNP). The rest comes mainly from levies on agricultural imports and customs duties and VAT .

EU leaders meeting in Brussels last month failed to agree on the bloc's 2007-2013 funding and Mr Schuessel said budget talks were becoming "ever more brutal". He warned that if the EU was not given its own source of cash, there would be an "unprecedented scrap over distribution".

His proposal for a tax on international transactions similar to one made by French President Jacques Chirac to help fight Aids.

It is likely to meet opposition from financial markets as well as from the US and Britain, where the financial services sector accounts for a large part of the economy. - (additional reporting, Reuters)