Friday 23 August 2019

We need to turn off the tap on water wastage

Politicians struggle to find answers to funding water services but, writes Sean Barrett, the challenge is local

Water-tax net revenue from households is €120m with general taxation contributing €550m to the water budget.
Water-tax net revenue from households is €120m with general taxation contributing €550m to the water budget.

Two years ago on these pages I sought the abolition of water tax and Irish Water. I had proposed 19 amendments in the Seanad and all were rejected.

The rejected amendments included stating the free allowance per day per person in legislation; protecting the consumer interest by involving the National Consumer Agency; using the Competition Authority to restrict the abuse of dominance by the Irish Water monopoly; and involving the investment appraisal functions of the Ministers for Finance and Public Expenditure and Reform in ensuring efficiency in both the investment and operations of the company.

The message then from Irish Water and its parliamentary promoters was clear. Irish Water was intended to be an independent republic. There would be no supervisory role for the Oireachtas, the Consumer Authority, the Competition Authority or the two government departments in charge of the public purse.

The expert group which reported recently had nearly as many leaks as Irish Water itself. It made considerable progress towards the abolition of water tax and none towards the abolition of Irish Water.

These issues now go to an Oireachtas committee and the votes of both Houses.

Taxation requires consent. In the words of Jonathan Swift "all government without the consent of the governed is the very definition of slavery".

Water tax failed to secure public consent, was ineffective as a revenue raiser, and infringed canons of taxation such as equity or fairness, economic efficiency and administrative efficiency.

Water-tax net revenue from households is €120m with general taxation contributing €550m to the water budget from tax revenues of €48bn. General taxation pays 82pc of the cost of household water. This raises the question why the last government risked so much unpopularity over so small a portion of the domestic water revenues and such minuscule tax revenues.

In July, stated that: "Ireland has the most progressive income tax system in the EU." In a progressive tax system the tax rate rises with income. By contrast, Ireland's water tax was a version of the UK poll tax. Changing from a progressive tax in the finance of Irish Water to a regressive poll tax infringed equity or fairness.

Water tax might reduce wasteful consumption, but this is not a problem by international standards. We have wasted money and political capital on a non-problem. The Government's €100m refund of water tax in so-called conservation grants to households is paid irrespective of any conservation measures.

The quantified evidence is that water waste is endemic in local authorities under the aegis of the Department of Local Government, the sponsor of water tax legislation.

According to the McLoughlin Report in July, 2010, 41.2pc of water produced by local authorities was "unaccounted for". This undermines the credibility of the department in sponsoring water tax. The inefficiencies in the water sector are on the supplier side. They are not solved by user taxes.

We have spent €550m on the installation of water meters to levy the water tax. The start-up costs of Irish Water to collect the tax have been stated at €100m. Since the Revenue already collected €48bn in taxes and paid more than 80pc of the water budget, the additional water tax administration costs are way out of line with the now preferred option of financing normal water consumption from general taxation. Ireland's commitment to universal water metering has been massively expensive for little gain.

The espousal of Irish Water by the permanent government is in sharp contrast to its ratings elsewhere. The Reputations Agency rankings of Irish corporates in 2015 and 2016 ranked Irish Water last of 100 companies based this year on 5,093 responses.

In the wider economy, efficient firms gain market share from the inefficient. The McLoughlin Report shows that some local authorities have policies, personnel and procedures which outperform others more than threefold. Lumping them into the Irish Water monopoly is a classic case of moral hazard, with no penalty for unaccountability.

Efficient water authorities taking over the more wasteful will provide a benchmark for improvement.

Advocates of water tax have produced the last-resort argument that "the EU will make us do it" and that we are only obeying orders. An EU water-tax regime makes no sense given the wide disparity in water availability in the EU.

Every sector claims we spend too little public money on that sector. Water is no exception. Water tax and Irish Water were supposed to be the solution by providing a separate exchequer. Neither solves the problem. The Departments of Finance and Public Expenditure have to assess all claims on the public purse, their benefit/cost ratios and appraisal techniques. Ireland traditionally ran a public capital programme larger, relative to GDP, than elsewhere in the EU.

The task for the water sector in a period of tight public finance will be to up its game in terms of efficiency and project appraisal. Every project in every field has an opportunity cost. There is no free money.

Our water problem is not due to stingy taxpayers and wasteful water users. It arises from wasteful local government and its interaction with national government. That is the challenge the Oireachtas committee must now face.

Sean Barrett is a professor in the Economics department at Trinity College Dublin

Sunday Independent

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