Keep these people in mind when reading this post: Mary, a single parent working a part-time minimum wage job as a cleaner in Dublin hotel; John, a long-term unemployed construction worker who manages to get a few days’ work a month; Moira and Barry, she lost her job and Barry lost hours – raising two children and falling further into mortgage arrears. I’ll come back to them at the end of this post.
The Government has finally announced its plans for water charges. Minister Hogan was on RTE Prime Time and RTE News and provided the following information: the average single person consumes 78,000 litres of water a year; they will face an average bill of €138 per year. By taking water expenditure off the books (i.e. it is no longer considered a Government expenditure, it now belongs to a public enterprise company) the Government will save €700 million per year annually (but not next year, I’m assuming).
Apparently, the Government has done its own surveys – it would be helpful if they released this data so we could get a greater insight into consumption patterns for different household types, ages and income-levels; but don’t hold your breath. So let’s work with what we’ve got (these calculations are different from what appears in the Irish Times – they use average per capita and family household – but they are close enough; these are all just estimates).
It would appear, from the above information, that a litre of water will cost a little less than a 1/3 of a cent per litre (0.0029). This is derived from 48,000 litres of water that will be billed (the average single person’s consumption of 78,000 minus the free allowance of 30,000). This comes to about €2.65 per week.
Now let’s look at some issues.
Conserve and Pay More
The Minister claimed that:
‘If people engage in conservation they will pay less. If people want to waste water, they will pay more.’
Is this true? Probably not. The Government needs to a pre-determined revenue target to move expenditure off balance sheet. Given the Government target of €240 per household and the fact that approximately 1.35 million households will be on the public network, this means the charges have to raise approximately €325 million. Whatever the per litre charge, regardless of free allowances, we must raise €325 million. That’s the starting point.
Let’s say everyone ‘engages in conservation’ and reduces water use by 10 percent. To maintain revenue of €325 million, the price of water would have to rise from 0.0029 cent to 0.0033 cent per litre (that is, if there is no change in the free allowances or reliefs). Households will be no better off.
The Minister claimed that reduced demand would mean reductions in expenditure because we wouldn’t need the same supply. This assumes that every one percent reduction in water use will result in one percent reduction in Irish Water expenditure. Will this happen? Doubtful. There is a certain level at which expenditure on a national infrastructure cannot fall below – regardless of how little is consumed. We still need treatment plants, we will still need pipes.
It is further doubtful given the woeful state of our infrastructure and the level of investment needed – which will have to be paid by borrowing with all the debt-servicing costs.
But at another level, this is all beside the point – because the Government is committed to ‘full-cost recovery’; in other words, the entire cost of Irish Water will come from charges. This will be phased in over time. How much will this be? Up to €560 per year for an average household. So charges will more than double. Conserving will knock a little bit off this but everyone will pay more.
The Government should be more honest with people.
Who Will Bear the Burden of Conservation?
There is a further perverse situation. There is a link between incomes and water consumption (similar to electricity consumption). Moderate consumers may try to reduce their use to save money because they are on low-incomes. But what about high-income, high-users of water (the ‘wasters’ the Minister referred to)? If a single person on high income uses 1.5 the average of water consumption, they would be facing a bill of €250 per year. Would that be high enough to incentivise conservation? Difficult to say – but if someone on €80,000 per year receives a 2 percent pay increase – or €1,600 – (managers and professionals have seen their weekly income increase by 10 percent over the last two years), then the extra net income would be more than enough and then some to cover the charge.
The perverse outcome is that the ‘burden’ of conservation will fall on those who are already moderate userswho can’t afford the extra expense while the ‘wasters’ on high incomes won’t change their behaviour because they can well afford it.
This is all conjecture but reasonable conjecture. High-income high-users may not change their behaviour because they are not as sensitive to water pricing as those on low-incomes.
The wasters may continue to waste; moderate consuming households may be forced to cut back.
The Real Game Plan
There is so much we don’t know because the Government won’t release the information in a coherent and analysable form. But there are some things we do know:
- Charges will be regressive. That’s beyond dispute. On average, water charges will make up a higher proportion of disposable income for low-average incomes than those on higher incomes.
- Waivers and reduced tariffs will have no impact on most people experiencing deprivation. Take three key categories: half of all unemployed and lone parents suffer multiple deprivation experiences along with nearly a third of one-income households. These groups will get no relief (unless there are medical issues involved).
- Charges will be deflationary and will impact negatively on economic growth. Many households will, if possible, recoup the charges by reducing consumer spending or fall further into debt.
But there is a broader narrative and this brings us back to Mary, John, Moira and Barry. They will all be hit with water charges. On average, they will pay an extra €4.60 per week.
However, the Government is committed to providing tax cuts to higher-income groups through raising the standard rate tax band threshold. If they raised it by €2,000 this would provide our friend on €80,000 with a tax break of €420. That would more than pay for their water charge.
In short, May, John, Moira and Barry will be paying more so that high-income earners get a tax cut.
In some places, this would be called horribly inequitable.
In Ireland, it’s called ‘reform’.
Latest posts by Michael Taft (see all)
- Welcome to the New Tax Avoidance Scheme, Same as the Old Tax Avoidance Scheme - October 20, 2014
- Austerity is Over? Now Back to the Real World - October 15, 2014
- The ‘Taxes’ on Living Standards the Government Won’t Be Addressing - October 13, 2014
- What is Going On in the Irish Economy? - October 9, 2014
- Squeezing the Middle - October 7, 2014