The Central Statistics Office has told Eurostat, the EU statistics agency, that Irish Water should be classified as being off the Government balance sheet.

Minister for Public Expenditure Brendan Howlin said the Cabinet had been informed by the CSO of its recommendation to Eurostat, which is expected make the final decision on the status of the semi-State in the coming months.

“We have been informed by our own domestic authorities, the Central Statistics Office, that their determination is that it should be off Government balance and that is what they have submitted to the Eurostat organisation and Eurostat will be making an independent determination on that,” Mr Howlin said.

He was speaking at a press conference to mark the publication of the spring economic statement.

The CSO has provisionally classified Irish Water as on balance sheet pending a Eurostat decision. To qualify as being off balance sheet, Eurostat has to agree that more than half of Irish Water’s revenue is commercial.

A decision that all Irish Water’s investment should remain on balance sheet in the years ahead would restrict the room for manoeuvre in future budgets, as well as delivering a damaging political blow to the Government.

The stability programme update to the European Commission, published with the spring statement, confirms that the expenditure of Irish Water is being treated as general government spending and its borrowing is also being considered as government debt.

“Until Eurostat makes a decision, Irish Water is on the balance sheet,” Mr Howlin said. “That’s the general, default position. Unless it is formally excluded, it is included.”

Fianna Fáil spokesman on Public Expenditure Seán Fleming said this was the Government preparing people for the worst-case scenario.

He said Mr Noonan and Mr Howlin needed to be honest about the reality of the situation. A decision by Eurostat is now due in the autumn after several delays.

Also at the press conference, Minister for Finance Michael Noonan said the gap in income tax paid by the self-employed when compared to PAYE workers would be narrowed in the next budget.

However, the Minister said he would not know by how much until he had firmer economic figures later in the year.

Mr Noonan also said the Government position that any proceeds from the sale of State shareholding in the banking system would be used to pay down debt had already been decided.

Tánaiste Joan Burton said at the Labour Party conference earlier this year that she wanted a "social dividend" from the sale of bank shares. "It's only right that the people share in any benefits that flow from selling them," Ms Burton had said.

Mr Noonan said he understood Ms Burton was referencing AIB, adding that his department was working with advisers to sell the State's interest in the bank.

“We won’t be doing anything there until the end of the year or early next year. We have already decided that we ares not going connect the sale of the shares in AIB to the political timeline.”

Mr Noonan said the sale could wait until after the election and said all the issues, such as a social dividend, could be discussed then.