There were tens of thousands of citizens on the streets of Irish cities and towns this weekend to protest against the imposition of water charges and/or the creation and management of Irish Water. The palpable anger at the charges themselves and the ham-fisted way they have been introduced has meant it is difficult to conduct reasoned discussion around this issue. There has been widespread condemnation of the manner in which the government and Irish Water itself has communicated with citizens. While a lot of this criticism is warranted it's also true that many opposed to the charges are not willing to hear the arguments in favour. It is very easy to blame your opponents for their lack of communication skills when really the issue is that you disagree with their points.
Below I set out to challenge some the arguments suggested by anti-water charge campaigners. To my mind the arguments in favour of the establishment of a single water utility are straightforward and convincing.
I have little sympathy for Irish Water and this government in how they have handled a lot of this - including the over-staffing of Irish Water and the reactions to political pressure to make the process overly complicated. My issue is that the furore over Irish Water reduces the chances of water charges being brought in and these are needed to create an adequate water infrastructure and save money for the exchequer.
1. Water charges are a form of double-taxation
It is the case that citizens have always paid for water into and waste water out of their homes. This has been financed through general taxation. This has resulted in an under-investment in the water infrastructure because water infrastructure is likely to feature quite poorly relative to, for example, education, health, transport infrastructure or tax cuts, in the competition for calls on exchequer finance. Establishing a single water utility with its own dedicated income stream from charges has two implications. First, there is an ability of such a utility to borrow on the strength of that income stream to invest in the water infrastructure. Second, moving the cost of providing water out of general taxation reduces the demands on general taxation and so can finance tax cuts or (if taxes remain unchanged) increasing government spending. Of course another option is to pay down government borrowing.
It has been argued that the removal of water rates was accompanied by an increase in VAT rates which aren't reducing when water charges come in. This is a bit woolly to say the least. I am not able to identify all of the VAT changes since water rates were removed but it would be very difficult indeed to link the water charges to any specific VAT change, and anyway it could be that the VAT rate is lower than it would otherwise have to be in the absence of water charges.
2. Water is a right and so should not be subject to commoditisation or commercialisation
Anti-water charge campaigners have argued that, since water is a right protected by the UN, it should not be commoditised. The reference to water as a right is very selective. The right2water campaign cites UN Resolution 64/292 as providing a right to water and implies this means a right to "free" water. This right to water resolution was part of a prolonged UN campaign to encourage investment in water supply in developing countries. Indeed it is not a little obnoxious to use a resolution aimed at promoting water investment in the poorest countries in the world to justify direct charges for water in one of the richest. In any event, the resolution cited does not imply a right to "free water". In fact the same resolution states the cost of water should not be greater than 3% of household income. The annual median household income in Ireland in 2011 was €35,216 according to the Nevin Research Institute. The average annual cost (before allowances) for a family with two adults and two children is €278. That's 0.08% of disposable income. To get to the maximum recommended by the UN in its water resolution would require a household on the median income to have 10 adults living in it.
The UN also states that there is a right to housing and electricity. Does the right2water campaign consider these to be arguments in favour of providing housing and electricity for all through general taxation? Because the UN also supports a right to electricity and housing in a convention relating to discrimination against women.
3. Irish Water is being established so that it can be privatised
Few Irish utilities have been privatised. There is not a privatisation agenda in Ireland that was seen in the UK in the 1980s. The obvious exception in Ireland was the privatisation of eircom, though there are other utilities (more similar to Irish Water) that remain state companies (i.e. Elecricity Ireland - formerly ESB - and Bord Gais). I would argue that these utilities are natural monopolies due to the size of the Irish market, where the large fixed costs of their infrastructure.
Even if Irish Water was to be privatised it is unlikely that it would be privatised in whole. What has happened in Ireland and many other countries is that competition has been introduced to parts of utility businesses (usually around customer supply or generation) and the 'grid' or infrastructure underpinning supply remains in public hands - since this is a natural monopoly. Consumers have benefited from this competition where ESB, Bord Gais and Airtricity now selling electricity (and two of them also selling gas) and competing on price. Liberalisation of phone markets saw a reduction in the cost of calls while the line rental charge (the cost of the infrastructure remained unchanged).
4. Water charges are a form of indirect tax and so are unjust
It is the case that water charges are not linked directly to income and in that sense they are regressive. That means poorer households will pay a greater proportion of their income on water charges than richer households - this is certainly the case for non-metered charges. It's also likely to be the case for metered charges though it might be expected that richer households will have higher metered bills because they will have more appliances and 'conveniences'.
Ignoring the idea that usage charges may encourage less water usage and conservation there is an inconsistency in the water protests in that they are targeting a form of 'indirect taxation' that is far less costly for poorer households than a couple of percentage points on VAT.
5. Water is a public good
Treated water and waste water are not public goods in the economic definition of such goods. These are goods that will be under-provided by a market because they can be consumer simultaneously and it's impossible or very expensive to exclude someone from using them. Examples are street lighting or national defense. Treated water can only be consumed by one household and it is possible to exclude households (for example if there is a private water scheme you do not get supply if you don't pay). For most common goods the solution is for the state to directly provide or fund the provision of these goods. The decision is whether to charge directly or pay through general taxation. The former is preferable, but the latter is required when it's not possible to know how much of a good one consumes. We can figure out how much water a household consumes but not how street lighting or defense.
It has also been argued that water is a common good. Again it's unclear what is meant by that when it is thrown around by opponents of water charges (clarity is the first casualty in these debates). A common good is a good to which every one has a right of use. The problem with common goods is that if everyone has a right to use them then they get overused - essentially we can't put a price on them so they are considered to be free. There are a lot of examples of common goods and the problems associated with them. Governments apply fishing quotas because in their absence there would be over-fishing and depletion of fish stocks. This involves essentially giving a property right to some fishermen to take a set amount of fish.
The common good view of water also results in over-use and a lack of investment in fixing leaking pipes. If water is free then why care about leaks?
6. The government should fix the leaks in water pipes before charging for water
This is a classic Catch-22. To fix the leaks costs money. But where does the government (or local authority) get the money to fix the leaks. This can't be borrowed because of our national debt. So a utility with a dedicated income stream is the most obvious answer. So, if you care about fixing the leaks you should favour water charges and an Irish Water utility.
7. People can't afford the charge
This is true, but the effect is not one charge but the cumulative effect of all the budget measures. My sense is that the big problem with water charges is not paying for water but paying for water now - after the pain experienced over the last 6 years. There are more simple ways of dealing with this through tax relief (similar to the tax relief for service charges) and a social welfare payment for those not in work or below the threshold for tax. These wouldn't be administered by Irish Water so now PPS numbers needed there. There could be sunset clauses attached so that the allowances and relief would disappear over a period of 3 years (for example) as the economy hopefully strengthens and recovers.
I'm an economist so many of these posts will be about economic issues. But since everyone is allowed a view on economics I am inclined to go beyond my profession to throw my tuppence ha'penny into other issues.