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We need to get ready for "one last gasp of austerity" in 2015 --- economist

The quarterly water charge set to hit households from January will effectively “suck” money out of the system, economist Tom McDonnell says.

Image: Water Charges via Shutterstock

WATER CHARGES MAY not be mentioned when Michael Noonan gets on his feet to deliver next month’s Budget — but we need to be aware that they’ll have a significant impact on consumption next year.

That’s the guidance Fianna Fáil TDs and senators have been given at the parliamentary party’s think-in event, which is continuing in Roscommon today.

Dr Tom McDonnell of the Nevin Economic Research Institute gave a lecture to members yesterday on the subject of water charges and conservation.

He says that, while the levy isn’t necessarily a bad idea, there’s no getting away from the fact that it will “suck money out of the economy”.

McDonnell says the charge (which will be about €70 per two-adult household) will have a greater impact on poorer groups, and effectively work like a consumption tax.

“Indirect taxes and indirect charges tend to do so, whereas direct taxes tend to be more progressive — they would hit higher-income households more.

We’re concerned about that from a social justice perspective.

McDonnell says that while the levy will bring in about €370 million for the exchequer, the impact on people’s pockets will be felt across society.

“Although it may not be announced on Budget Day — it’s important to remember that this is one final last gasp of austerity that’s going to hit Ireland.

That doesn’t mean that water charges are a bad idea. It’s important that polluters pay for the scarce resources that they use. And it is important that Irish Water have a sustainable funding base.

“But there is no doubt that the social concerns are there. Whereas before, we were paying for water through general taxation, now it’s going to be paid on a consumption basis.

The evidence is strong that that will disproportionately hit lower income households.

There’ll be knock-on effects as we spend less throughout the year on everything from local shops, day-trips and cars, says O’Donnell…

Something else will have to give. The net effect will be to suck money out of the economy.

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In the longer term, who-ever’s in power should look at reducing the impact on poorer households, bringing in ‘tapered’ breaks for the less well-off, says O’Donnell

What we would suggest is that if there’s funding available to ameliorate the impact then it should be focused on lower income households rather than being a benefit that applies to everyone.

“It would be smarter to reduce the universal free allowance and actually use some of that money to provide water credits for lower income households.

“That could be done in a way that doesn’t disincentivise work because what you do is you target groups by income band, and you taper down the benefits.”

Read: Micheál Martin: “I’m preparing to be the next Taoiseach”

About the author:

Daragh Brophy

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