The Government has limited room for manoeuvre in cutting water charges to consumers, if it wants to keep the costs of Irish Water off the State balance sheet. This is the crux of the problem it faces as it aims to defuse public anger at the charges.
Giving money back to consumers via tax relief and household benefits packages may, however, be the way to lower the costs while staying within the rules.
An analysis of the published information on what Irish Water will spend and where it will raise its money shows it needs to raise significant revenue from the public to stay within the rules. If it does not do so, officials have calculated that more than €800 million will be added to borrowing next year, cutting Ireland’s ability to meet EU deficit targets.
Juggling the deficit
The whole structure of Irish Water was established so the bulk of State funding would not be counted in the annual exchequer deficit, as measured for EU purposes.
Thus, Irish Water has to be seen to raise a significant part of its funding from sources other than the Government.
The rules for this are set down by the EU statistics agency Eurostat, in what is called a “market corporation test” – in other words, a test of what Irish Water’s finances need to look like to justify its existence as an independent entity.
Three tests need to be met, relating to the amounts that Irish Water raises in revenues from households, businesses and the Government and the relationship between these numbers.
Two of these restrict the Government’s wiggle room.
First, the amount of money raised from the public must “clearly exceed” payments from Government coffers. Previous figures show that revenue from households (just over €300 million in 2015) and businesses (€230 million) at €530 million exceeded total Government support by about €100 million.
Doesn’t add up
The second test is even tighter. It requires that the amount collected from households and businesses must be equal to 50 per cent of Irish Water’s production costs, and should “clearly exceed” this figure “as soon as possible”.
With production costs of just over €1 billion, this leaves very little room to play with. Even if there was some adjustment to Irish Water’s costs, it is hard to see the figures adding up if less than €250 million is collected from households, and more in future years.
Giving money back via tax relief and household benefit packages will help stay within the rules, while cutting the net costs to households.
The cash will still come in to Irish Water from the public and can thus be counted in its finances.
Widening the promised tax relief to households – so that all households benefit from €100 in tax relief, no matter what their bill comes to – together with a credit for those on welfare support is one key step in the Government’s plan to try to assuage public anger.
Further moves to cap charges are also being considered, but these will have to ensure that Irish Water still gets enough revenue.
