Troika raises concerns over Ireland's new water scheme

Senior European officials have raised concerns about the potential for the new water regime to jeopardise the Government’s fiscal planning.

A source close to the European Commission said the move to suspend metered charges in favour of a flat rate had come as a surprise, even though it was recognised that the political situation had become considerably more difficult in recent times.

The flat rate was unveiled two days ago as part of moves to defuse the prolonged water charges controversy.

The concerns have been raised as officials from the EU-IMF troika – comprising the commission, the European Central Bank and the IMF – conclude a week-long inspection in Dublin of the Government’s affairs.

Although the inspectors have no enforcement powers to demand policy action from the Government, they can still highlight any concerns over Ireland’s capacity to repay bailout debts. The overall assessment is expected to be positive, although the troika bodies do have some anxieties on some policy areas.

The new water plan is under examination by the commission and its statistical division to see whether the debts of Irish Water can continue to remain off the State’s balance sheet. This depends on a ruling due next April from Eurostat, the commission’s statistics arm. Any direction that Irish Water should be carried on the State’s balance sheet would increase the national debt and the annual deficit.

Under EU rules the Goverment must continue reducing the deficit even after this is reduced below 3 per cent of economic output next year.

Although the Government believes the new plan will pass Eurostat’s market test, the source said the statistic agency would never provide provisional guidance on its likely treatment of any initiative.

In addition to concerns over the potential impact of the revised plan on the public finances, the source also said there were questions over the efficiency of the flat charge.

“A flat charge, not linked to consumption, on the face of it seems to be something that could be improved upon,” said the source. “At the beginning of the year, we assumed it was going to be completed as planned . . . What was surprising for us was that it was being contested.”

Surprise within the commission centred both on the force of public protests against water charges and the Government’s decision to introduce sweeping changes to the original scheme.

The commission will give its Budget 2015 assessment next week. Although the commission believes the budget will be sufficient to meet the deficit targets, it may criticise Ireland for not using its strengthened fiscal position to pay down more debt and opting instead to cut income tax.