Radical reforms of the system by which member states' contributions to the EU are calculated are examined in a report from the European Commission to be published today. The options, one of which involves substantial cuts in EU CAP payments, could have seriously affect Ireland's EU net receipts.

The Commission will not make specific recommendations today , but will warn how difficult agreement on change is likely to be. And it will make clear it views the current system of "own resources" as adequate and fair. The report, which has been obtained by The Irish Times, is a response to complaints from a number of countries, led by Germany, that their net contributions to the EU budget are excessive - Germany contributes some 60 per cent of net EU spending.

Agreement by member states to review the contribution, or own resources, system in the context of the next Budget round, Agenda 2000, is likely to seriously complicate the negotiations, and the Commission is understood to hope that its report today may help to defuse tensions on the issue. The report looks at three ways of reforming the system:

A Spanish proposal to introduce "progressivity" into the calculation of member states' contributions.

The abolition of the British rebate or its extension to other countries who believe they are paying too much in net contributions.

A shift in the burden of farm spending back to the member states.

The first would mean a cut in Irish net contributions, while the last two would mean a significant increase.

But the report argues that the current system of calculation "has performed adequately in terms of both sufficiency and in terms of equity in gross contributions".

The Commission says that shortcomings "do not of themselves provide grounds to justify an urgent modification" of the current system.

The report also predicts that Agenda 2000 will reduce the "budgetary imbalances" which have caused the complaints in Germany, Austria, Denmark and the UK. This is particularly so, it says, of Germany. The Commission warns member states not to get too hung up on the size of their net contributions. They are "only a narrow view of and fail to account fully for the benefits accruing to member states from participating in the EU". EU spending on CAP or strucutural funds has a spill-over effect on other member states as does the benefits of access to the single market, the report argues.

The Spanish proposal, supported by Portugal, explicitly links member states' contributions to their ability to pay in the way that a progressive income tax system does domestically. And, like a national tax, the proposals would also levy higher rates as income increases.

The effect on 1997 payments, the Commission calculates, would have been to reduce contributions from Greece, Spain, Portugal and Ireland by 17, 15, 18 and 6 per cent respectively. And it would have increased German, Luxembourg, and Danish contributions by five, 28, and 12 per cent respectively.

Such an outcome would make the proposal completely politically unrealistic although the figures will provide Spain with a useful argument against German demands for reform.

The Commission attacks the British rebate mechanism, negotiated by Mrs Thatcher, as no longer appropriate to the shape of the current EU budget and resulting in an "inequitably" low budget contribution from the UK relative to its wealth. It argues that the rebate should go but warns that in itself this will not be enough to remove current imbalances.

The application of the rebate formula to other countries, the Court of Auditors has already warned would cost the poorer EU states some £10 billion.

The idea of requiring member states to "co-finance" a quarter of direct income support to farmers would help net contributors like Germany particularly as they are less dependent on farming. It could save up to 17 per cent of total CAP payments by 2006, the report says.

But the move would cost Ireland, and other poorer EU states, hundreds of millions of pounds and is likely to be strenuously resisted. Some 60 per cent of CAP payments come in the form of direct income supports.