As a result, ministers have been warned to “dial down their expectations” in terms of new spending plans for the budget, and savings in some areas may be required to balance the books.
Housing Minister Eoghan Murphy has yet to finalise the total cost of replacing the revenue lost from the suspension of water charges, but two Government ministers confirmed the figures for replacing the water charges revenue alone to be in the region of €100m.
Mr Murphy has to bring forward legislation in the autumn to address the shortfall in funding.
The news comes as Finance Minister Paschal Donohoe is set to publish the Summer Economic Statement (SES) today, which will confirm a net fiscal space of €1.2bn.
However, given previous commitments and the new public sector pay deal, the actual amount of new money available to Mr Donohoe is just €350m.
“There is a need to spend more on water before the end of 2017,” one minister told the Irish Examiner. “The Government had agreed to fund the difference to cover the suspension of water charges for nine months. Given the decision not to bring them back, the first thing they will have to do with any additional money is fund that.
Further to that, there is an additional charge on the taxpayer in 2018 which has yet to be funded, according to Cabinet documents, seen by the Irish Examiner.
“The impact of abolishing water charges has not been included in projected general government revenue and this will affect the structural balance forecasts for 2018 so this is one of the moving parts,” the documents state.
“The cost of tidying up the water issue is not insignificant,” said one minister. “Suggestions that this would be in the tens of millions are too low. It will be higher than that, with €100m alone to deal with covering the cost of replacing charges.”
Following the general election of 2016, the Government agreed to suspend water charges for a period of nine months, as part of the confidence and supply arrangement with Fianna Fáil.
However, the decision to continue with the suspension has not been factored into the budget numbers for 2017, hence the shortfall.
According to the SES, the Government intends to balance the budget in 2018, eliminating the need to borrow to cover day-to-day spending for the first time in over a decade.
Mr Donohoe and his officials also expect to achieve a position of full employment in 2018, which will see the unemployment rate fall to between 5% and 6% and remain at that level out to 2021.
While GDP or growth this year is forecast to be 4.3%, this is projected to fall next year to 3.75% and to around 3% from 2019 onward, while job creation will decrease slightly to 50,000 new places, sources familiar with the document have told the Irish Examiner.
According to Government sources, Mr Donohoe is set to emphasise the pending 10-year capital investment plan which will commit to the construction of a number of major new motorways, including the proposed M20 between Cork and Limerick.
The statement will also refer to the need for sound and sustainable public finances and Mr Donohoe has set balancing the books as his top priority in his first budget as finance minister.
The plan will also ensure there is balanced regional growth and opening up of access to finance, especially for small and medium enterprises, sources have said.
Speaking ahead of the publication, Fianna Fáil’s finance spokesman Michael McGrath said: “ Fianna Fáil wants to see the right balance struck between prudence in relation to the public finances and in terms of investment.”