Here is a piece carried by today’s Irish Examiner on the funding of public expenditure on water. It is based on a recent post - ‘how much do we spend on water?’. The unedited text for the piece is reproduced here.
Conservation grant a half-measure that muddies the waters
In 2012 public expenditure on water in Ireland was €1.5 billion. This money is being spent on a system that does not work. The ongoing protests about water charges fails to understand the key point – it is not about paying for water; it is about paying for the infrastructure to deliver clean water and treat waste water.
Over the past ten years the government has spent €18 billion on water. Of this, only 10 per cent was to pay for the actual supply of water to households and businesses. An emphasis on conservation can only save money on this small portion of the expenditure. The other 90 per cent of expenditure is unaffected by the amount of water we use.
It costs about twice as much to manage and treat waste water and sewage as it does to provide clean water. A further 30 per cent of water expenditure over the past decade was consumed by staff costs. The remaining 40 per cent was devoted to investment in the water and waste water infrastructure. This is the largest component of expenditure on water and the most important.
The most significant austerity measure introduced in relation to water since 2008 is not the botched introduction of domestic water charges – it has been the slashing of investment in our water infrastructure. Since 2008 capital spending on water has been cut by over 60 per cent.
In 2008, the government provided €1 billion for investment in the public water system. The same year the ESB also provided €1 billion for investment in the electricity system. In 2012, the ESB’s capital expenditure was close to €800 million while public capital expenditure on water was cut to just €375 million.
As a semi-state company the ESB can leverage its revenues to borrow money to fund its investment. As a commercial enterprise the ESB’s management can take a long-run perspective.
On the other hand, expenditure on water was part of general government expenditure and the huge cuts to public investment in water were introduced to meet short-term deficit targets and avoid adjustments elsewhere.
Huge expenditure is needed to bring our water network up to scratch but it is not clear where the money will come from. The government remains under pressure to reduce the deficit and the size of the public debt limits the government’s capacity to borrow even though interest rates are at historical lows.
A public utility can raise the funds and its management can look beyond short-termism or the election cycle. Investment in water and sewage infrastructure does not have political attractions. It is disruptive, underground and offers little opportunity for ribbon cutting.
Although they have been on the agenda for years, water charges were rushed in by the current government because they wanted to get them in the rear-view mirror well before the 2016 election. The charges were over complicated politically-motivated add-ons such as allowances which required PPS numbers to be administrated correctly.
If the politicians wanted to compensate people for the introduction of water charges it should have been done through the existing tax and transfer system. This would have been possible in last month’s budget which had a €1 billion package of tax cuts and expenditure increases but a lack of joined-up thinking resulted in a failure to get a coherent message across.
Now we have a further complication with the €100 water conservation grant. This is just further pointless administration. The government want to cap water charges at €160 per household but because Irish Water must get more than half of its revenue from private sources households will actually pay €260 to Irish Water and receive €100 back from the Department of Social Protection.
The government met major difficulties a few years following the introduction of the €100 household charge; now they are giving €100 to households to try and solve the mess made of water charges. To avoid been deemed as a subsidy to Irish Water the €100 will be paid to all households. So instead of collecting money off those on the public system we now have reached a point where we are subsidising those on private water schemes who paid for their own water up to now.
Ireland has a history of introducing measures with names that do not reflect their actual design. For example, we have the respite care grant and the public sector pension levy. This measures have their merits but their implementation has nothing to do with respite care or public sector pensions. They are a transfer payment and a pay cut.
There are many items on this list to which we can now add water charges and the water conservation grant. These have nothing got to do with using or conserving water.
The principles of taxation are equity, efficiency, certainty and ease of administration. The charges announced this week fail on three of these principles. Both the charge and offsetting grant are at a fixed rate so are regressive. The fixed charge means that there are no efficiency gains from conservation and the fact that households have to pay €260 to Irish Water to get €100 back from the Department of Social Protection only adds to the unnecessary bureaucracy of our system.
It is a little ironic that the outcome of the protests of the past few weeks has resulted in charges that are regressive and inefficient. We should have water charges based on use but not necessarily because we need to conserve water. Conserving water is helpful but it is not as if like we are going to run out of it. It actually does fall out of the sky. It is better management of the plentiful supply we have that we need.
Better management can be achieved by metering but the benefit of this will be in identifying leaks and unreasonable usage rather than in getting typical households to control their usage. Universal metering is unlikely to being significant benefits. The introduction of metering is to link charges with usage of water but we must have a utility that can adequately fund the 90 per cent of expenditure that is on top of the cost of the actual water.
Many of those protesting want the abolition of Irish Water. A utility company for water is exactly what we need. The system that resulted in the broken water network we have now must be dismantled.