Huge growth drowned out by Irish Water

The whole Irish Water saga took another turn for the worse this week with confirmation from Eurostat that it would not be possible to place the activities of the utility off the State’s balance sheet.

If permission had been granted to place it off balance sheet, the company would have been able to carry out the investment in infrastructure that is so badly needed without impacting on the public finances.

However, thanks to a combination of the anti-water charge campaign and the failure of more than half those liable for water charges to pay them, a botched set-up process by the Government, and its back-peddling on the ludicrous water conservation grant, any investment in water will, for the moment, be included in the exchequer finances and be subject to various fiscal rules.

This means there will be less money available to invest in the waterinfrastructure, and any investment that does take place will automatically mean less money for vital public services. The anti-water charges brigade should bear this in mind when they move on to their next protest over issues like health or education. They cannot have it every way.

From a Government perspective, the whole saga is a sorry mess that will seriously complicate life for Fine Gael and Labour in the run-up to the election. At one level it is difficult to have any sympathy because one couldn’t possibly make a bigger mess of setting up a State utility if one had tried.

No surprises there, given that it was a rushed job and the whole structure was seriously flawed from the word go. For opposition parties and independents, it will be easy to make political capital out of the Government’s misfortunes, but they are failing abysmally to come up with any viable options that would actually deliver the type of water service and infrastructure that a modern developed economy should take for granted. Ultimately, everybody who consumes water will be the big loser in the whole sorry mess.

It is particularly unfortunate for Government that the water saga continues to detract from the positive economic story that continues to build. Yesterday we got confirmation that economic activity as measuredby GDP was 6.5% ahead of the first quarter of 2014. All components of activity expanded strongly, with consumer spending up by 3.8%; investment up 4%; and exports up by 14.3%. GNP, which in many ways is a more accurate measure of real economic activity on the ground, expanded by 7.3%. At a sectoral level, output from agriculture expanded at a year-on-year rate of 5.9%; industrial output expanded by 9%; building and construction output expanded by 3.3%; distribution, transport, software, and communication rose by 6.5%; while public administration and defence contracted by 5.5%.

Notwithstanding the difficulties in interpreting the latest growth data due to the changed treatment of aircraft leasing, it is clear that the momentum in the economy continues to improve.

The growth data relate to the first quarter, but subsequent data releases suggest the momentum actually improved further during the second quarter. For example, data earlier this week showed that the value of retail sales expanded by 5.5% in the first six months of the year, and by 2.3% when buoyant car sales are excluded.

Not surprisingly, the Central Bank has revised up its growth forecasts for this year and next, with GDP now forecast to expand by 4.1% this year and 4.2% next year. The 2015 forecast possibly looks a little conservative based on what we have seen in the first seven months of the year. However, forecasts should never be taken too seriously.

In theory this should all be very positive news for a Government that has to face the electorate over the coming months.

However, thanks to its own botched job in setting up a botched entity that will raise a relatively tiny amount of money this year — even if everybody pays their charges — the electoral dividend is not being felt and IrishWater could well prove the Achilles heel of the current administration over the coming very important months.

All very depressing.