Fianna Fail believes it is “dangerous” and “risky” to refund the 950,000 people who have paid their water charges.

Leader Micheál Martin told his parliamentary party meeting it was his party’s position that those who have not paid their charges should be pursued for the funds.

Mr Martin said there were many mechanisms to secure the money from those who have not paid their levies, including attachment orders.

However, the party believes refunding those householders who have paid in full is “dangerous, unprecedented and risky for the State”.

It is understood Fine Gael and Fianna Fáil advisers met on Wednesday with a number of outstanding issues on Irish Water to be resolved.

The two parties are at odds about the wording of the legislation to suspend the water charges.

Fine Gael is reluctant to place into law the commitment that water charges would only return if the Dáil votes on it.

Minister for the Environment Alan Kelly earlier warned Dublin faces water shortages if a Fine Gael-Fianna Fáil agreement to suspend water charges is passed.

The two parties are edging towards a deal on water which would pave the way for the formation of a minority government led by Enda Kenny.

In a scathing attack in the Dáil on the reported deal between the parties, the Labour Minister accused Fianna Fáil of "environmental treason" and claimed politics was failing.

“I believe we are about to witness the triumph of mediocrity over modernism, of short-termism over common sense and immaturity over innovation,’’ he added.

Mr Kelly, who was opening a debate on Irish Water, was flanked by a number of Labour colleagues and, as he noted, there were no Fine Gael TDs present in the House during his speech.

“Let’s be clear on the decision that may be made shortly,’’ said Mr Kelly. “A suspension or scrapping of charges will lose billions of potential investment in water and I believe we will have water shortages in Dublin in future years.’’

Money back

The Minister said if there was any fairness, law-abiding people, who could afford to pay and did pay, would have to get their money back.

This would mean Irish Water would have to reprocess well in excess of two million in financial transactions, he added.

“A former politician once stood in this house and accused Fianna Fáil of economic treason - today I believe Fianna Fáil are guilty of environmental treason, and the Labour Party stands behind the important public service of water provision.

“Politics is failing the people of the country again. Utopian populism is winning again.”

Independent TD Catherine Connolly said she was sufficiently new in the chamber to "still be aghast at the arrogant, contemptuous and self-serving content'' of the Minister's speech.

“I would have thought I would have seen a little humility and a hands-up acknowledgment of the mistakes made and the debacle of Irish Water,’’ she added.

Fianna Fáil environment spokesman Barry Cowen said his party's overriding election promise was not to enter into government with Fine Gael.

“We recognise that no one won the election but we recognise that the Dáil contains a majority that is against the water charges and the water charging regime that is in place in the form of a commercial utility,’’ he added.

“Consequently, we recognise the right of the Dáil to determine the future of those.’’

Minister for Agriculture Simon Coveney said Fine Gael had won 50 seats in the recent election and the parties of the outgoing Government could no longer impose their will on the Dáil.

“Instead, we need to persuade people on the merits of good public policy, informed by experts and best practice,’’ he added.

Negotiating teams from Fine Gael and Fianna Fáil on Wednesday discussed the issue of repaying the 900,000 people who have paid their charges in full should the Dáil ultimately vote to abolish them.

Sources said the agreement on water will centre on the suspension of charges for a period of some nine months, which could be further extended.

The emerging deal will see a commission of experts established to examine issues such as alternative charging systems. Irish Water, as an entity, will not be referred to the commission. The work of the commission could take a year, it is thought.

The outcome of the commission would then be referred to an Oireachtas committee. The committee's findings would be voted on by the Dáil, as had been proposed by Fianna Fáil, meaning the future of charges will have to decided on the floor of the House.

Election

While initially hostile to a compromise that involved a lengthy suspension of charges, Fine Gael backbenchers have softened their positions as many realised a failure to reach a deal would cause an election.

Mr Kenny, the acting Taoiseach, and senior Fine Gael ministers earlier informed backbenchers the only prospect of saving Irish Water is to reach a compromise with Fianna Fáil on the charging regime.

Mr Kenny told the outgoing Fine Gael-Labour Cabinet that their meeting on Tuesday was their last, and thanked the Ministers for their work.

While Mr Martin told the Dáil he is not afraid to go to the country over water, senior figures in his party last night said a deal would be done within 48 hours.

The parties are also planning to discuss outstanding issues surrounding those members of the public on group water schemes.

Both sides are confident of a deal by Thursday and will seek to schedule a vote for Taoiseach when the Dáil meets next week.

Uncertainty

The progress in the talks came as the Department of Finance warned the next government faces a greater level of global economic uncertainty than at any time since the height of the financial crisis.

The department called for prudent fiscal management to offset any threats to the State’s recovery from the numerous sources of international uncertainty.

The warning, in a submission to be sent to the European Commission under EU rules, was accompanied by an upgrade in the department's growth forecast for 2016 and 2017.

The Stability Programme Update document forecasts 4.9 per cent growth in gross domestic product this year, up 0.5 percentage points on its last projection, and it believes growth of 3.9 per cent is in prospect for 2017.

At the same time, the department said income tax and VAT collections in the first three months of the year were “somewhat disappointing”.

Brexit

The department said the “principal downside risks in the short term” relate to trading partner growth and Britain’s looming referendum on EU membership.

The report, endorsed on Tuesday by the Cabinet, is to be debated later in the Dáil before its submission to the European Commission in the coming days.

While the department also cited spending pressures, it expected such trends could be accommodated within European fiscal rules.

The projection of continued growth in Ireland remains the "central scenario".

However, the department warned that financial market turmoil at the start of the year flowed from concern that weakness in China and emerging markets could push the global economy towards recession.