The Government needs Irish Water to pass a key Eurostat test next month to free it up to undertake the key infrastructure investment needed in the years ahead. If it does not, additional investment by Irish Water will be counted as part of the national finances, where extra spending is tightly constrained by new EU rules.
Irish Water plans to invest about €600 million a year in upgrading the national infrastructure, including tackling leaks, replacing lead pipes and other work on water and waste treatment infrastructure.
The Government established Irish Water as an independent entity to allow it to raise funds separately from the exchequer. However Eurostat, the EU statistical body, has to give the green light using a set of rules to determine whether Irish Water is independent of Government.
There has been a focus on the implications of this decision for the 2015 and 2016 budget figures. If it fails the test, all the State funding put into Irish Water would count towards the calculation of the deficit for this year.
This would add to borrowing this year, but strong tax revenues so far indicate that the cost could be absorbed without breaking the target for the deficit this year. However, official sources are more concerned with the implication for budget figures over the next few years in the context of new spending limits.
If Eurostat judges that Irish Water is not a separate entity, the investment spending it undertakes will count as part of overall government spending.
New EU budget rules – to which Ireland is subject having left the bailout – will put a strict limit on the rise in spending each year.
While more leeway is given for investment spending, the reality for the Government will be that more spending on Irish Water will mean less spending or higher tax elsewhere.
Eurostat is due to deliver its decision next month. Sources remain cautiously optimistic that Eurostat will rule in the Government’s favour. However, much will rest on its assessment of the €100 being returned to households via the social welfare system.
The Government argues that this is separate from Irish Water and that the organisation will have the required amount of independent funding to count as a separate entity.
Minister for Finance Michael Noonan is seeking some more flexibility of the application of the EU rules to Ireland but, even if this is granted, strict limits will remain on spending.
