Water price hike is all wet

According to the State Comptroller’s Report from October, the Water Authority council should actually be contemplating a price cut.

By
December 23, 2012 22:44
3 minute read.
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Water coming from shower 311. (photo credit: stevendepolo)

 
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We have been blessed with exceptionally abundant rainfalls and the level of Lake Kinneret has risen more in December than in any other month for a decade.

But while there is more water to spare, its price will not be going down. In fact, we will soon be paying more for every drop that comes out of the tap. In January, the Israel Water Authority’s council, which sets water policy, plans to increase water costs for households by 3 percent to 5%.

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If justified, such a price hike might actually be welcomed.

It would potentially have the positive side benefit of maintaining a strict regimen of water conservation at a time when too many Israelis, faced with impressive downpours, are mistakenly becoming complacent and allowing themselves to waste water. However, according to the State Comptroller’s Report from October, not only is it inadvisable to raise water prices, the Water Authority council should actually be contemplating a price cut.

Since 2010, water prices have gone up by roughly 30% in accordance with a government decision that the price paid for water should reflect real costs. In theory this sounds fair. But the reality is much different. The sharp rise in water prices paid by households over the past two years reflects – at least in part – inefficiencies, cross-subsidization and taxation, not the real cost of water.

According to the comptroller’s report, at the beginning of 2011 an advisory firm hired by the Israel Water Authority found that too many water corporations had been created as part of sweeping reforms first passed by prime minister Ariel Sharon’s government back in 2001.

Only 13 corporations were needed to manage water and sewage services for 137 municipalities and local councils, according to the advisory firm, not 54 as is the case now. Reducing the number of corporations would do away with wasteful overlapping functions and redundant management and operation costs and would result in a 7% decrease in water prices.

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Admittedly, the creation of the corporations was designed to remedy a situation in which municipalities were responsible for water and sewage services. Too often, these municipalities diverted revenues ostensibly collected for water to seemingly more urgent needs while water infrastructure was left untended and pipes and sewage leaked. But the advent of corporations have created another problem: politicians on both the local and national level have an interest in creating as many corporations as possible so that they can pass out jobs to cronies.

Another problem is cross-subsidization. An absurd situation has been created in which households – not the state – subsidize the low water prices enjoyed by farmers, industry and some hospitals, hotels and mikvaot (ritual baths). According to the comptroller’s report, this subsidy made up 10% of the price paid by households in 2010 and 2011. It is perfectly legitimate for the government to encourage agriculture and industry by providing subsidized water prices, though the reasoning behind such a move is questionable. However, it is unfair to expect poor households who can barely afford their own water bill to pay extra so that businesses can benefit from particularly low water prices. Indeed, many poor families have had their water cut off because they can’t pay the bill.

Another aspect of government policy that artificially jacks up water prices is taxation. Inexplicably, we pay value-added tax on water. Like other necessities such as fruits and vegetables there should be no VAT on water.

Doing away with the tax would significantly lower water prices.

The present government can still reverse the decision to raise water prices before January 1. At the very least, the planned price hike should be postponed. There is desperate need for a public debate on water policy.

Issues such as subsidies for agriculture and industry, VAT and streamlining of the water corporations should be discussed.

Perhaps the government will reach the conclusion that instead of a hike, what is in order is a cut in water prices. The increased rainfall after years of drought provides the ideal backdrop for a new focus on water price policy.

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