The future of Irish Water is likely to become a significant issue in the formation of the next government.
Fianna Fail wants to scrap water charges, abolish Irish Water, send the utility’s staff back to local councils, maintain some form of national oversight body and, at some stage in the future when the country’s water infrastructure is updated, reintroduce a low, fixed annual fee. Fine Gael wants to keep Irish Water and water charges in place.
On Tuesday night, Simon Coveney suggested that Fine Gael might be willing to discuss this, but yesterday he and Enda Kenny indicated that the party wanted to keep Irish Water and a system of “fair” charges. Fine Gael is of the view that it would be a big mistake to start reversing a very difficult process to establish a new utility.
It is unfortunate that water charges will become such a hotly contested issue when the country faces more pressing challenges. Ireland’s incipient economic recovery could still be derailed, particularly as the international environment looks increasingly precarious.
This was the only country in the OECD that did not have a dedicated water utility. The water infrastructure is in a shambolic state as a result and more than half of the national supply is lost every day through leakage.
Advertisement
This parlous state exists because of decades of neglect. Maintenance of the pipe infrastructure was the responsibility of 31 local authorities and the money available was part of general funds.
As the pipe infrastructure remains underground, its condition was never a subject of public discussion or — more importantly — complaints. Investment in the service was never was a priority for local councils and consequently it suffered from years of chronic underfunding.
Sinn Fein and the Anti-Austerity Alliance-People Before Profit grouping had the most vocal campaign against water charges before the election. They received 17.8 per cent of first-preference votes between them. In other words, it was just one of a number of messages delivered by the electorate, but it was far from a ringing endorsement of the Right2Water campaign.
There is now a real danger that in the political horse-trading to form the next government, a decision is made on the future of Irish Water based on short-term considerations. Abolishing water charges as well as Irish Water and moving back to the old system would be a big step backwards.
Irish Water was created against a very difficult backdrop. It was incorporated in July 2013 and from the beginning of 2014 took over responsibility for the water system from local authorities. Ireland had endured nearly six years of painful spending cuts and tax increases at that stage. Accusations of cronyism and incompetence in the establishment of the utility acted as a lightning rod for widespread disaffection.
Advertisement
Its provision had been agreed with the troika as part of the EU/IMF bailout programme in November 2010. The move was based on an OECD recommendation to widen the tax base as much as possible, which in the case of Ireland meant water charges and a property tax to help to reduce the pressure on income taxes.
Also, by reducing the level of spending that is funded through income taxes, governments are then able to lower the tax rates on labour, which leads to greater economic activity and ultimately increases tax revenues.
There is now a very real danger that Ireland, which already has punitive levels of taxation for middle-to-high income earners, will peg more spending to general taxation.
It will cost roughly €1 billion to make the water system fit for purpose. If Irish Water had passed the EU Commission’s self-sufficiency test, the company would have been able to raise finance in the capital markets and fund capital expenditure from its own balance sheet.
In the medium to long term, a more efficient water system would mean cheaper bills for everybody. It would also mean that a properly metered system would have much greater levels of conservation and efficiency of usage. A fair system of charges could be introduced that would involve allowances for various users and charges that encourage people to conserve what is a precious resource.
Advertisement
Water charges were never popular and were possibly the single biggest reason for the demise of the Fine Gael-Labour government, but just because they are unpopular does not mean they are wrong.
Water charges should be a central component of the tax base — it makes by far the most economic sense of all the options available.