Commission on Taxation: Water charges

The Commission on Taxation recommends that water charges be introduced. High time. Giving away a valuable resource has never been smart.

There are two additional recommendations by the CoT.

Water charges should come in two types: Flat rates for those without meters, and volume-based rates for those with meters. If the flat rate would be set at approximately the average volume-based rate, then a substantial fraction of the population would have a reason to install a meter. If the flat rate is then adjusted to the average volume-based rate OF THOSE WITHOUT METERS, meters will soon be installed everywhere. If not, there will be a subsidy flow from those who save water to those who do not.

It’s a pity that water data are so poor that we do not even know the average drinking water use per household with some degree of confidence.

The CoT also recommends that local authorities be local monopolies in supply, and that the price be regulated, presumably by a new Commission on Water Regulation. Old habits die hard.

22 thoughts on “Commission on Taxation: Water charges”

  1. When I lived in manchester we were charged £20 (bi monthly i think) in a one bed apartment. Presuming this being a flat rate, would this be a reasonable expectation of what we are likely to see here?

    Also if a flat rate is charge (regardless of house occupancly levels), would we not also see a subsidy from one bed apt non metered to 2&3 bed apartment/houses non metered.

    I would be a tad miffed if I this turned out to be the case.

  2. @Joseph C
    Indeed. A flat rate per dwelling is an implicit subsidy from those who live alone to those who live together. It can easily be constructed as a tax on widows, but the problem is just as easily overcome by installing a water meter.

  3. @Richard

    Are water charges for public water infrastructure, or a charge for using a “scarce” commodity?

    These are different things. For example, if you pump your own groundwater (depleting the water table), or harvest rainwater (reducing runoff) you consume clean water but bear the full cost of the infrastructure. Should this attract a charge and how would it be calculated?

  4. @RT “It’s a pity that water data are so poor ”

    It’s a pity that water quality is so poor too. Will we end up paying through the nose for shoddy goods and service again? Is that what we like to call “an Irish solution to an Irish problem?”

    I’m still in the process of reading this report. It strikes me though that we are no closer to defining the kind of vision or ‘blueprint’ for the society we want to live in and then sorting out how we are going to pay for it appropriately. Isn’t this just another step backwards to getting things back to the way they were before the recession? aka We know what we currently pay to keep our government/administration working the way it is so let’s make sure that we (more consistently) collect that amount and keep it going the way it is….. and let’s make sure we cherry-pick while we are at it.

    I suspect we are looking at the thin end of a wedge here and will end up simply paying more tax for zero improvement in our various political/services/economic infrastructures. My experience of living in several other countries points to people don’t mind paying taxes as long as they think they are getting a good and fair deal.

    Reform? What reform?

  5. Let’s first dispense with the myths.

    “Giving away a valuable resource has never been smart.”

    If we were “getting this for free”, then who paid for the water main up my street and who pays for the ongoing catchment, treatement, distribution and maintence.

    Yes, creating a marginal price and making its incidence fall on the end user is a more efficient structure.

    But then, so is some form of competition. But what we are being promised is more expensive water (we already pay for this via general revenue) and creating yet another state owned monopoly.

    Is there anything sensible coming from this Commission, rather than novel ways to tax more?

  6. Water charges makes economic and environmental sense.

    BUT ……….. implementing them will prove to be a nightmare ………. the data is apparently not there and the cost of installing meters etc and so on …….. this could be one of those great ideas where the cost of implementation/collection proves to greater than the revenue generated.

    Might be better at the mo to spend some funds, if available!!!, on water quality and other interventions such as preventing fertilizer/human and industrial waste/and agricultural sludge from polluting rivers and lakes [tourism revenue improves and we drink cleaner water, better health, etc ……………..

  7. @bg
    The CoT is vague. They say that the price of water should be based on the principle of full cost recovery, but “full cost” may or may not include the scarcity value of the resource.

    @Geckko
    This blog is the “Irish Economy” and all the contributors are professional economists. So please forgive our marginal thinking.

  8. @Richard

    Mind the hubris. I too am a professional economist. WHy not consider some of the substance of my post.

    Such as, how does introducing a marginal cost, consumer pays structure the most significant inefficiency in water resource provision – loss in distribution – when you have a monopoly supplier?

    More water is wasted via distribution than will ever be saved by households price elastic demand response.

    A professional economist might consider these issues of some importance.

  9. I think that the capital costs and natural inertia will mitigate against people installing meters which will in turn mitigate against the effectiveness of the tax as tool against water wastage.

    I am in favour of water charges but they have to be fair and effective in reducing water waste.

    I do not want to subsidise other people or to be disadvantaged by my local authority being less efficient than others or or to be disadvantaged by the fact that my pipes are are more difficult to meter than others. I also do not want to have to pay for a meter if others have had meters installed for free. I do not want to have to take a day off work wait around for hours for the meter installation man to come. I do not want to pay for my water when the local authority has no comprehensive approach to methos for identifying leaks (in private pipes) and water wastage.

  10. @Geckko
    I wrote “The CoT also recommends that local authorities be local monopolies in supply, and that the price be regulated, presumably by a new Commission on Water Regulation. Old habits die hard.” The last four words indicate my disapproval.

    Competition in supply does not fix the pipes, though.

    If we believe these numbers (http://ideas.repec.org/p/esr/wpaper/wp293.html), then we produce about 350 litres of drinking water per Kilkenny person per day, and about 650 litres per South Tipp person per day. Water use per person is probably less than 200 litres/day, and may be as low as 100 litres/day.

    The water charges will be based on production. Installing water meters would quickly reveal that one-third to five-sixths of water gets lost somehow, and would also reveal the local authorities that do well on this score.

    I would think that the water charge should be based on the actual use plus 33% for unavoidable leakage. Let the county councils pick up the tab for excess leakage.

  11. By no means the water charges should be based on resource scarcity plus costs needed to ensure the quality, distribution etc. Two type water charges will introduce complexity if they are needed just to provide incentives for people to install meters.

    It is not a rocket science to install the meters for each household. The Gov should go for that providing a considerable free meter installation period.

    Technology exists for years and many countries (even less rich than Ireland) use it for years. In Lithuania (from where I am from) it was done almost overnight just after the declaration of independence.

    It is still difficult to understand why this charge was abolished in 1996 and why it takes so long to bring it back. Apparently, it is seen as an income line in a gov budget, but not as a tax ensuring the quality and the sustainable use of this scarce resource.

  12. I discussed water charges yesterday with an educated, intelligent friend of mine. Her initial position was that she didn’t want more taxes. I put it to her, what if, say, it was designed to be revenue neutral? We talked about flat charge vs metering. She mentioned how she likes her long showers, and that, under metering, although some people would maybe pay less, she’d be paying more. So she was against the idea.
    Me: “So basically, you want the lower water usage people to subside your long shower?”
    Her: “Yes.”
    Me: “Eh… Debate over I guess.”

    While my opinion is quite literally based on anecdotal evidence, I think this proposal, and others from the report that similarly try to change the structure of taxation/payment for govt services, are going to be a hard sell.

  13. @ John Cowan

    It will be hard as it is always hard to introduce (in this case to revive ) a totally new tax, but it has to be done sooner or later if Ireland wants to avoid a water crisis, and the gov should declare the current situation of water resources with some facts which are usually disclosed only by few NGOs or journalists on TV.

  14. why is water tax out on its own? wouldn’t it make sense to bunch it in with property tax and only charge on an excessive usage? property tax should be based upon provision of local services, and while water distribution has monopoly supply, maintenance of the infrastructure doesn’t have to also fall into the same category, there seems little incentive for improvement in the current way of considering it.

  15. John Cowan,

    On this particular issue I would disagree with your friend. It seems that water provision is one of the big areas under the auspices of the local authorities and it is a major service that is provided. To take it out separately and charge for it – given how the resource has to be managed – seems to make sense to me.

    People have pointed out the leakage issue. True the networks are old and run down. But that in itself is not a reason to refuse to pay. Perhaps one way around this would be that after metering (if that were to happen) or by some other measurement, the central government could provide an incentive for local authorities to upgrade their distribution systems. (Several mechanisms can be imagined like rewarding the achievement of certain ‘low-loss’ targets or whatever).

    Yet to another extent I see your friends point about being subsidised. At what point do we itemise and price every single state provision and charge people accordinly. Apart from being complex, annoying, and for smaller items, inefficient, we loss the whole notion of a ‘community rating’ (same concept as in health insurance). So we become a database of consumers and not a community. Some one might not go to the theatre or might be reasonably healthy and young – so should they be excluded from tax contribution to the arts, healthcare, and provision for the elderly. You see where I’m going.

    On the other hand – one thing is missing in the media headlines around the commission proposals : the fiscal context. We hear about ‘extra tax’ on families and ‘now charging for water’ or whatever. And people are responding by saying ‘I don’t see why I should suddenly pay for X’. What people need to understand is that there are say 10 to 15 billion worth of services which we can no longer sustainably provide. Hence we need to collect more taxes or implement cuts that would make the McCarthy cuts seem harmless.

  16. I wonder how many local authorities have sufficient scale to operate water supplies efficiently and to high quality standards. Last I heard, only Dublin City Council, servicing the whole Dublin region, had its own full drinking water test laboratory. My guess is that this is not the only area where scale matters in providing water supplies.

  17. @Con,

    You have made an excellent point (which links to Richard’s observation in his post about retaining the local authority monopolies). Craeting a small number of water and waste water companies based around the major centres of population (and subject to effective central regulatory control) should allow for the capture of some economies of scope and scale. And, although it might not lead to competitive provision of bulk water supplies, would at least allow for some regulatory bench-marking.

    Allowing the current local authority chaos to levy water charges would be the utlimate in folly.

    And there is a more general point about a narrow tax base and relatively low marginal tax rates combined with, for many utility services, high point-of-use charges. Many of the high point-of-use charges compensate for the relatively low tax take (in comparison to other OECD countries) and, in effect, include implicit taxes.

    Stripping out the implicit taxes, levying efficient point-of-use charges and broadening the tax base with a more equitable and efficient taxation system should be the objective, but this wasn’t in the CoT’s ToR so we are stuck as usual with some good ideas topped off with a plethora of half-arsed proposals for reform that the politicos will mince into economic nonsense.

  18. @Tomaltach
    “At what point do we itemise and price every single state provision and charge people accordinly. Apart from being complex, annoying, and for smaller items, inefficient, we loss the whole notion of a ‘community rating’ (same concept as in health insurance).”

    Trouble is that
    1) we have ended with a “community rating” for lots of things – all paid for by whatever central government can raise/feels it can raise by taxes or levies or duties or whatever;
    2) it is not enough any more to provide everything
    3) apart from a few years, it seems that our government system has a chronic inbuilt tendency for not matching expenditure with revenues!

    If you want to change the results, you have to change the approach! Hence the CoT – even if it originated as a way to deal with the Green Party’s demand for a carbon tax.

    Well implemented modern IT systems make it possible to itemise and even price many things that were “free at point of use” (ie. not priced, separately) eg. Ryanair’s range of charges – some of which you can opt out of, pay TV.

    Supplying clean water is a matter of public health, as we have seen in Galway and many other places in recent years. That does not mean that we have to stick with the current methods of providing it ie. free, unmetered at point of use for domestic residences.

    The issue of paying for what we want will not go away.
    For this reason, economics is always political – in the sense of who pays for what? when? how?

    Electricity is now essential and is metered. I gather that there was very serious consideration given to not metering electricity on private residences when the ESB was being set up to build the Shannon Scheme, as the output meant massive overcapacity for demand at the time.

    Somebody or some group made a wise, long-sighted decision that I have never heard questioned.

  19. Charging for water, if metered, has two potential conservation benefits i.e. reduction in water wastage and reduction in energy wastage, as so much hot water is used in modern residential premises. The use and wastage of water is more tangible and evident to the user than the wastage of the electricity or gas used to heat the water, which by its nature is less visible at the time of use e.g. a running or leaking tap is much more obvious than a heater left on or a thermostat set too high. Conserving water leads directly to conserving energy, but metering is required.

  20. I am on a meter here in Toronto. The old one (internal to the house) broke which we had to read ourselves and submit to the water board, the new one was installed inside the house but uses wireless tech so the meter reader doesn’t have to set foot on the property. Presumably the reason for that is that the meter is subject to far smaller temperature swings inside than outside.

    Absolutely there should be no meter charge for existing houses and for new houses it should be covered by dev. charges.

    Here water is a separate city agency not privatised. We’ve had 9-10% increases the last few years as 100 year old pipes put on the long finger start to let go (in a climate like this one – range -30 to +30 – you can only get away with that for so long).

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