Thoughts on funding of water services

water

Next week the NERI will be holding a seminar on the topical issue of water charges (detail are here). In advance of the seminar, this blog provides some thoughts on funding water services in Ireland.

Access to clean and affordable water is a human right. Yet there is no such thing as free water. On an annual basis, the provision of water and wastewater services costs in excess of €1 billion. Water is difficult to transport and a consistent and secure supply of clean water is expensive to provide. Indeed the provision of water and waste water services requires the construction, maintenance, operation and improvement of expensive network infrastructure. The question isn’t ‘whether’ we should pay for water and wastewater services but ‘how’ we should pay for them.

We can pay for water through taxes or tariffs or both. Until 2014 water and waste water services for domestic users were mainly paid for out of monies raised from general taxation (e.g. VAT and income tax) which was allocated as subsidies from central government to local governments.

At the moment it appears that the funding model for 2015 is €533 million from the Local Government Fund, €305 million from domestic water charges and €230 million from non-domestic (mainly commercial) water charges. In addition, there will be €222 million allocated as an equity investment by the Irish government in Irish Water. The equity investment won’t count towards the deficit and won’t count for the purposes of determining Irish Water’s total revenue.

Irish Water’s estimated €535 million revenue from charges (€305 million + €230 million) exceeds the government subvention of €533 million and this places Irish Water ‘off the books’. This enables the classification of the €222 million as an equity investment that doesn’t count towards the deficit. Overall Irish Water will receive circa €1.29 billion in 2015. The total ‘off-books’ is €757 million (€305 million + €230 million + €222 million) and the total ‘on-books’ is €533 million.

Spending on water and wastewater will be close to €1.3 billion in 2015 – circa €700 million in operational expenditure and circa €600 million in capital expenditure.

The improvement in the 2015 deficit arising from the introduction of domestic water charges appears to be the €757 million less the €230 million in non-domestic charges (which were an increase in revenue for the purposes of the deficit). If this is correct, the improvement therefore seems to be around €527 million. This figure does not include the cost of the various social protection measures introduced to help offset the burden of water charges (e.g. the increase in the household benefits package and the new water tax credit). These measures are collectively well in excess of €100 million.

So who is scheduled to pay for water in 2015? The government sector (general taxation) is contributing €755 million (58.5%), the household sector is contributing €305 million (23.6%) and the non-domestic sector is contributing €230 million (17.8%).

Are water charges fair? Will the current structure increase poverty? I will discuss these issues at the seminar next Wednesday

Of course the reality is that this issue is far from resolved.

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Dr Tom McDonnell


Tom McDonnell is co-director of the Nevin Economic Research Institute and is based in the Dublin office. In addition to managing staff in the Dublin office he has co-responsibility for the NERI's research programme and for its strategic direction.  

He is also responsible for, among other things, the NERI's analysis of the Republic of Ireland economy including risks, trends and forecasts. He specialises in economic growth, economics of innovation, Irish and European economies, and fiscal policy. 

He previously worked as an economist at TASC and before that was a lecturer in economics at NUI Galway and at DCU. He has also taught at Maynooth University (MU) and is currently an occasional staff member at MU. 

Tom obtained his PhD in economics from NUI Galway. He is a native of Limerick city and lives in Maynooth.

Contact: [email protected] or 00353 1 889 77 42.