The decision to refund water charges adds another cost to what is already a financial fiasco for the Government. On a conservative estimate, the net cash cost to the Exchequer of the whole episode involving the water charge and the conservation grant will now be about €120 million.
All the cash from the water charges will be repaid. There are also clear indications the €100 conservation grant will not be recouped, meaning the €90 million cost of this remains for the Exchequer. Add to this the administrative costs of collecting the charges, paying the conservation grant and now repaying the water charges, and the cost rises to around €120 million. Even sending out letters to people due a refund will cost close to €1 million.
And that is before the bigger questions it leaves behind about funding a multibillion investment programme to continue the work started by Irish Water.
Total revenue from the water charges – the amount to now be refunded to households – is about €170 million. The net benefit of the charging regime had already been sharply reduced by the payment of almost €90 million in conservation grants, ostensibly separate from the water charges but in reality a political move to try to dampen opposition.
While the charges were paid to Irish Water and the conservation grant came from the central exchequer, they are directly linked. Proof of this is that the exchequer will now have to pay the refunds as Irish Water would not have resources to do so.
Administrative costs
The grant reduced net revenue from the water charging regime to about €80 million. Add in the €20 million cost of collecting the charges and almost €6 million as the cost of administering theconservation grant, and the net revenue was just €54 million.
While there is no estimate yet of the administrative cost of making refunds, it would be safe to assume that it will be significant – probably up to €3 million to €4 million. There must also be real questions about whether the money can be repaid by the end of the year, as Taoiseach Leo Varadkar has promised.
The more important longer-term question is about the funding of Irish Water and its investment programme. The utility plans to invest €5.5 billion by 2021. The Communications and Energy Regulator noted in a recent report that Irish Water had already undertaken significant work, in upgrading water and wastewater plants and cutting leakage. The issue now is the ongoing funding of this vital programme.
More than €450 million has been spent on meter installation and it is not clear whether they will be linked to any future charges. Irish Water has said the meters have been vital in identifying leaks, the fixing of which already saves 89 million litres of water every day.