Monday 17 December 2018

Water charges make sense, the Government has just done a bad job convincing us

Protesters march against water charges in Dublin earlier this month. Photo: PA
Protesters march against water charges in Dublin earlier this month. Photo: PA

Stephen Kinsella

Over the weekend, protesters burned their Irish Water application packs across the country. The middle classes are intent on showing the Government their displeasure by marching in their thousands.

The latest Red C poll found 35pc of its respondents are refusing to pay water charges. The Government is trying to change the charging structure on the fly, while Irish Water's senior management are getting kicked up and down the airwaves for failures in communication.

A personal aside: Irish Water's CEO John Tierney was the answer to a question in a pub quiz for charity on Friday night and when his name was mentioned as the correct answer it was booed loudly by the entire pub. How's that for a communication failure?

As roll-outs of new taxes go, the introduction of water charges should have been less controversial than the local property tax, but it hasn't been that way at all.

The taxpayer hands over around €1.3bn today to the Government in general taxation to pay for water provision and capital expenditure related to the water network, but this amount leaves the system without sufficient resources to develop and increase conservation of treated water, which we know we will need in the next 20 years.

This point is not made strongly enough, and that is a pity, because the economics of the problem are clear. Someone has to pay more to make sure the service is properly run. In the short run, taxpayers want to see an end to boil water notices, to inefficient services with their water; in the long run, a body charged with water conservation can help us deal with any effects climate change and increasing urbanisation might have.

From the Government's point of view, broadening the tax base beyond income taxes, VAT, excises and stamp duty puts in place a fiscal architecture where property booms and busts don't blow holes in the State's finances.

The introduction of property, carbon, and water taxes pushes much more of the Government's tax base into what economists call 'anti-cyclical' taxes, which don't go up when the economy booms, but also don't disappear when times turn hard.

The Government needs to tax water because it needs to tax something people use all the time. The taxpayer needs an efficient water treatment service which eliminates the disasters we've seen around the country.

The system needs more investment, and while the Government can borrow to finance this investment, that borrowing needs to be repaid. So households have to pay the difference. The only question is what model to adopt to charge the households and deliver the service.

The Government opted for a semi-state model to provide the service. The semi-state model had advantages on paper. Irish Water is part of the Bord Gais (now Ervia) group. Bord Gais was already a regulated entity providing services across the country, including metering, network management and customer service. Logically, transposing the Bord Gais model onto water seemed like a winner.

With a management set up and incentivised by a bonus structure to deliver a quality service, any 'profits' earned by the semi-state would be re-invested in water infrastructure. Everybody would be a winner, including the highly paid management team and, in the long run, society. The international norm is a regulated state utility for water provision. Through Irish Water, Ireland would be catching up, perhaps even forging ahead.

The existing water treatment capability of each local authority would be phased into Irish Water over a decade or so, with an agency model running until the mid 2020s. The key issue of over-staffing comes in at this point.

With a national authority, you just don't need all these people in 34 separate local offices. So rather than needing, say, 2,000 staff, Irish Water begins life with closer to 4,000. This is not Irish Water's fault, but rather a consequence of how we manage public sector workers. Some kudos for Irish Water: it set up a major utility in less than three years, obviously under the kosh from the Troika, but nonetheless the achievement stands.

The lead-in for major utilities is five to seven years. Irish Water did it in three. You might argue that the 'half-baked' feeling in many of the Irish Water policies comes from the speed with which it was set up, and that might be true, but the achievement stands in my view.

Credit also goes to the Government for having the foresight to implement a solution to a problem successive governments have stuck their heads in the sand about.

The Irish political system has never, ever been able to legislate for posterity, to implement 'stitch in time' measures, or to explain, effectively, when taxpayers are unhappy exactly why what is being done is such a good idea.

So far, so boring. The idea is pretty solid as it gets written on paper: water provision will be metered, households charged, incentivised to conserve water usage at the point of delivery, and over a few decades the water service will improve via increased investment, while the Government's finances are made more robust.

But, there's many a slip 'twixt the cup and the lip. The implementation of the plan has been dogged from the outset by a series of avoidable cock-ups. The legislation establishing Irish Water caused such a row that all the opposition parties walked out or absented themselves as the Act was passed in a stunningly anti-democratic fashion.

Metering provision; the revelation of the executive incentive structure copied and pasted from Bord Gais; the lack of accountability to the Dail; the lack of an effective sanction for non-payment because everyone has a right to water; the worry that Irish Water may be privatised; and the opacity of the tariff structure and almost daily revelations of new charges and perks for management, including cars, has turned the population against the Government. A fiver on the child benefit won't calm people down on this issue, and the Government knows it.

The Irish Water management team should go. If they can't manage what were obvious communication problems then why should we have confidence they can take charge of our water infrastructure?

The Government should reiterate its commitment in legislation not to privatise our water provision. A flat rate should be imposed for one year until Irish Water gets its act together. This is a decade-long investment in society: one more year won't make a difference.

Irish Independent

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