Moneytimes: Water charges will raise taxpayers' hackles

Abolishing local authority charges and property taxes may have been hugely popular, but now that they have to be re-imposed, they could be the straws that broke the taxpayers' backs. The Minister for the Environment may have been marking our cards last week about the imposition of water charges from next year, but there are no details - just speculation - about how much it will cost us, who will be exempted and what level of free water allocation we can expect. No one seems to know exactly how much the proposed water meters will cost either. There are a few clues, however, and they can be found in the 2009 Commission on Taxation report, under a chapter headed 'Future Financing of Local Government', Section 7: Water Charges. This lengthy section describes how domestic water users in Ireland are 'almost unique among EU Member States" for not having to pay local authority water charges in accordance with the polluter pays principle. It reminds us that up to 1997 many authorities did impose water charges on domestic users and the average annual payment by 1996 was between €65 to €184. By 2007, the gap between the cost and supply of water services was already €394 million a year, says the Commission, a figure now quoted closer to €450-€500 million. A minimum €4 billion investment in water services was needed. The Water Charges section is full of data about the cost of water for commercial and industrial users here and in other countries as well as the domestic water charges that users in other EU countries pay while noting, "The indications are that excessive volumes of water are being used by an [Irish] population that largely perceives water to be a free and limitless resource." The government, it said, backed itself into a corner by defending a policy that "to date has been to prohibit the charging for water to domestic homes on the basis that this is 'a core public service'. That is exactly how the majority of angry listeners calling into radio stations all last week see their water supply. A great many believe that they already pay enough for it through general taxation of when they paid over tens of thousands of euro in the form of property stamp duty when they purchased their overpriced homes. The latter, in particular, seemed to take an 'over my dead body' attitude to the notion of paying either a water or property charge. There was very little tolerance for the Commission's criticism that these same households could install a swimming pool on their premises "and access a free water supply to maintain that pool all year round at no cost. In our view, this is hardly a core public service." So what did the Commission on Taxation in 2009 believe the costs of water charges should be and who would be exempt? The cost of installing meters over a 4-5 year roll-out would be in the region of €400-€450 million, based on 2008 estimates but the full cost "should be borne by the state" and then passed onto consumers. Since the state's coffers are completely bare now, the suggestion now seems to be that the individual householder will have to bear that up front cost. On the matter of a free allocation of water - perhaps a shower's worth per person per day - the Commission said this would be "fraught with difficulty. Setting a relatively generous quota would do little or nothing to encourage water conservation; setting a low quota, or giving a number of units per member of the household, would present huge administrative difficulties. We concluded that it is preferable to have no quota in place and that those on low incomes could be dealt with through a waiver system." The waiver, it suggested, could be based on the existing free units of electricity system for low income households, which would presumably include social welfare recipients. There is no mention of negative equity households or those who have already paid stamp duty on their homes. The waiver, said the Commission should be determined by the local authority not central government. The Commission also recommended that the water charges be set low initially but only be payable once the meters were installed. Clearly that is not this government's intention if the charge is to start from next year, sans meters. As for the cost I must be "based on a consistent methodology [by the local authority] and applying the principle of full cost recovery." If other EU countries' daily water charges are anything to go by, this will be a substantial cost: the average cost per cubic metre of water in the EU in 2007, said the Commission was €3.25; but in Germany and in Denmark where there is 'full cost recovery' it was €5.09 and €5.63 per cubic metre respectively. This works out at 126 litres per customer per day in German and 116 litres in Denmark per day. In Ireland, we use 160 litres a day. Expect a big bill. jill@jillkerby.ie Next week: how the Greek crisis could affect you.