Until October of 2014 water and wastewater services in Ireland were funded through general taxation with an additional contribution from commercial rates. Usage based water charges take effect from October for residential households and are expected to raise close to €370 million on an annual basis.
Charges based on use should improve water conservation as well as the economic efficiency of water use. However, consumption charges are regressive, impact disproportionately on low income households and raise affordability concerns.
The current system of free allowances is expensive, poorly targeted and economically inefficient. Alternative models are described, including a water credit model to alleviate water poverty, and a zero free allowance model to generate a more progressive distribution of the cost of water service provision. These options are discussed in the context of the current regime; a changed water regime may be able to more effectively deal with issues of water poverty, affordability, efficiency and conservation.
Key Points
- Water policy pursues multiple objectives. These include affordability and social concerns, environmental sustainability, financial sustainability and economic efficiency.
- Moving the funding model from general taxation to user charges reduces the progressivity of the overall system of taxes and benefits, and raises issues of water affordability and water poverty.
- Using universal free allowances to reduce the average tariff level over the population is costly and reduces the scope for targeted affordability measures for lower income groups.
- The most economically efficient way to protect vulnerable households and to prevent hardship is to supplement the capacity to pay of low-income households through direct cash transfers or some other income supplement.
- In the longer-term the universal free allowance system should be completely replaced by a system of income related water credits. This would best protect low income households.