The Government Should now Come Clean on Water Charges

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wat_meI admit I can’t let this issue go but such is the misrepresentation, partial information and deliberate obfuscation being put out in the debate that it goes beyond a narrow calculation.  It actually reveals a Government determined to hide the facts in pursuit of a policy which caused over 150,000 to demonstrate last weekend.

Yes, I’m talking about water charges – but specifically about the estimated impact on the deficit if water charges were removed. 

And now Dr. Tom McDonnell over at the Nevin Economic Research Institute has done his own sums – and they mirror what I had previously calculated here.

The Government is claiming that removing the water charges would ‘cost’ €800 million (this was run out again on Morning Ireland today).  Is this correct?  No.  Let’s look at how the Government is obscuring the real numbers and see if we can find the right ones.  If this gets a little ‘number-dense’ please stay with it for it is about more than just abstract calculations; it is about how the Government is treating this issue and the public at large. All numbers are approximate and rounded.  I have produced a summary table below.

  • First, the total cost of water service provision is €1.3 billion (€700 million in current spending and €600 million in investment).
  • Second, the Government is committing €500 million from the Local Government Fund to Irish Water.  This is ‘on the books’; that is, this is counted as government expenditure.
  • Third, this leaves a saving to the Government of €800 million.

So far, pretty clear. The Gvvernment’s argument seems to stack up.  But, no, this is not the case.  Because the Government is losing €250 million in revenue.  This is the amount collected through commercial water charges on businesses  This used to Government coffers.  Now it belongs to Irish Water.

So the Government gains €800 million savings on the expenditure side but loses €250 million on the revenue side.  This leaves a saving of approximately €550 million. This is pretty much the same number that Dr. McDonnell arrives at:  €527 million.

Ok, so we have sorted that out.   The actual cost  of removing water charges would be €550 million – yes?  No, that’s not it either.  Because the Government is spending money as part of the move to water charging – spending that wouldn’t exist if there weren’t the charges.  Dr. McDonnell states that he doesn’t factor these in.  So let’s do that.  There are three expenditures:

  • First, Social Protection is increasing subsidies to the Household Benefit Package and recipients of the National Fuel Allowance scheme ‘to offset the cost of their water bills’.  This will cost €66 million.

Finally, the cost of providing free water allowanced for children is ‘on the books’; that is, it is counted as government expenditure.

‘Social transfers in kind include such items as free travel on public transport, fuel allowances and the child-based free allowance related to water charges.’

‘How much does this cost?  The Government doesn’t say.  But we can estimate.  There were approximately 1,170,000 recipients of Child Benefit.  Each one of these children should be receiving a free water allowance of 21,000 litres per year.  On the basis that this will cost €102 per child, this brings the total cost to €119 million.  But this is just an estimate so let’s be conservative and round it down to €100 million.

When we add up these costs – Social Protection subsidies, tax relief and free water allowances for children – it comes to €200 million.  This will ‘cost’ the Government.

When we subtract these expenditures from the €550 million net savings to the Government from moving Irish Water off the books, the bottom-line savings is between €300 and €350 million.  Here’s the summary table.

Water Deficit

So the Government claims removing water charges will cost €800 million.  But when we factor in the lost revenue (commercial water charges) and additional expenditure (Social Protection subsidies and tax cuts), the net cost will less than half that:  between €300 and €350 million.

Why is this so important?  Because it shows that if water charges were removed, the impact to the deficit would be miniscule (0.16 percent of GDP). This would still leave the Government well below the deficit target.  The Government is refusing to listen to people not because it would undermine their deficit target but because . . . well, you supply the answer.

The Government can claim its numbers are right – but only if they ignore the losses and additional expenditure.  This is highly misleading.  They do not refer to net costs; they do not refer to the net impact on the deficit.  This is no way to debate public finances.

Of course, both Dr. McDonnell’s and my own calculations are just estimates.  There is one body that can bring complete clarity to this issue:  the Government.  But they are refusing to answer simple questions in the Dail. Therefore, the appropriate Oireachtas Committee should take up this issue – either the Public Accounts Committee or the Joint Committee on Finance, Public Expenditure and Reform.  It is up to legislators to protect the integrity of the debate over public finances.

There is a simple rule in debate:  when someone obfuscates, avoids direct questions and resorts to throwing out numbers without reference to the bottom line, you can be assured:  they have something to hide.

No wonder 150,000 people were out marching last weekend.  They oppose water charges.  And they, rightly, don’t trust the Government on this issue.

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