THE GOVERNMENT WILL clock up a bigger deficit than expected next year because of the hit to the public purse from Irish Water, the ESRI says.

In its latest quarterly economic commentary, the economic think-tank said the forecast revenue from water charges in 2015 was “likely to be less positive than previously expected” after developments over the past 3 months.

That would force the government to boost its subsidies to the controversial semi-state agency and would punch a bigger hole in the budget deficit – which the ESRI predicted would stand at 2.4% next year.

It had forecast a deficit of only 2.1% in its previous commentary, which came out about a week before the Budget was handed down.

But the ESRI noted the government faced an even bigger time bomb in the form of Irish Water’s market test from the European Commission, which it need to pass to keep the quango off its balance sheet.

If it fails to receive at least 50% of its revenue from private sources, its borrowing must be included in the general government deficit, which poses a further risk to the 2015 deficit forecast,” the commentary said.

The ESRI predicted the government would have to spend an extra €200 million on total subsidies next year when compared to 2014.

The market test

Last month Environment Minister Alan Kelly announced a cut-price regime of water charges in the form of two flat rates that will last until the end of 2018.

The government said the two rates – capped at €60 a year for single-person households and €160 for all others – would bring in €271 million, on top of €229 from businesses.

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In return, it expected to have to hand over €399 million for Irish Water’s operating expenses – 44% of the total, or about €50 million less than the maximum allowed under the market test.

But one recent poll found one-third of all households would refuse to pay their water charges.

Meanwhile, the government said it was targeting one million registrations by Christmas – although to meet its domestic income target it needs virtually all eligible households to get on board.

Unemployment down, growth up

Elsewhere, the ESRI predicted unemployment would reach its lowest point since 2008 next year and would fall to “just over” 9.5% during the year.

That would include nearly 50,000 more people being in work than this year, although it expected only a 1% rise in average hourly earnings for workers after several years of falling wages.

Economic growth would be over 4.5% according to both Gross Domestic Product (GDP) and Gross National Product (GNP), which many consider a better measure as it only gauges income that stays in domestic hands.

ESRI ESRI

“This reflects increases in personal consumption and particularly stronger growth in investment than had previously been anticipated,” the commentary said.

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