Nationalising Irish Water could hit hopes of balancing budget

Nationalising Irish Water could shoot holes in the Government’s promise to get the State’s budget to break even by 2018.

Thu, 03 Mar, 2016 - 00:00

Ann Cahill

Despite setting up Irish Water as an independent entity, Eurostat, the EU’s statistics agency, ruled last year that it depends too much on the State for its revenue and so must remain on the budget books.

They estimate that the current set-up, where less than half the costs of Irish Water are being met by householders paying their charges, adds less than a quarter of a percent of GDP to the State’s deficit.

But the planned investment of €806m in the water system by Irish Water — which the European Commission says is essential — will also be added to the State’s accounts, even if the company borrows the money on the open market.

“Irish Water’s classification within general government means that its investment will be part of the budget and will fall within the constraints imposed under the Stability and Growth Pact as of 2016”, their report said.

But water charges and the needed investment will add around 0.5% of GDP to the national deficit at a time when the Government is trying to get Brussels to agree that a break-even budget is equivalent to 0.5% of GDP, according to Finance Minister Michael Noonan.

The addition of water costs would double the amount the State needs to borrow to finance the budget, and without another bumper year or two of taxes would put Ireland in danger of not meeting its balanced budget commitment.

Because the company was set up as an independent entity, the Government did not include the investment it needs in its capital projects plan for 2016-2021, the Commission points out.

As a result if Irish Water is abolished, the full costs will have to be met by taxpayers, and it may have to come from other areas earmarked for spending as the Department of Finance strives to meet the balanced budget rule in 2018.

Eurostat said its decision that Irish Water’s costs should remain on the State’s books was based on facts including that the prices being charged consumers were not economically viable and that the Government continuously funded, and controlled the company.

And it warned that Irish Water’s plan to upgrade the system was critical for the country’s economic development.

“The constraints that inadequate water supply and wastewater treatment facilities impose on growth, competitiveness, housing development and the environment are becoming increasingly visible”, notes the post programme surveillance report issued in January.

It urged the Government, and Irish Water, to better explain the need to improve infrastructure to the public to increase acceptance of the water charges — and said the company “must meet its commitments to improve service, deliver significant efficiency gains, and reduce costs. Acceptance of water charges could gradually improve”, it hoped, noting that the most recent figures for payments were “moderately encouraging” with an increase in the numbers paying their second bills.

But, it noted, that while revenue increased by almost a quarter between the first and second bills, “compliance rates remain low given the total customer base of about 1.5m households”.