The price of water – myth and reality

We’ve come a far since water costs were fixed by Knesset subcommittee of agricultural lobby representatives, but it's not enough.

By SUSAN H. ROLEF
Water 521 (photo credit: Courtesy)
Water 521
(photo credit: Courtesy)
On Wednesday, a private members’ bill introduced by MKs Alex Miller and Faina Kirschenbaum of Israel Beiteinu on the cancellation of VAT on water has just come up for preliminary reading. The bill, first submitted in January 2010, claims that until the municipal water associations were established in 2001, there was no VAT on water, and that the VAT merely placed an additional burden on consumers, whose water bills have been mounting in any case.
That the price of water has gone up significantly in recent years is undeniable. The Union of Local Authorities has been blaming the independent municipal water associations for the rise. In fact, the associations were established because many local authorities were accustomed to using money collected by means of the water bills for purposes other than maintaining and improving the water system, and the government decided to end this practice. The number of associations, and the way they operate, are not the culprits in this case.
The price of water has gone up both because the cost of producing it has risen significantly, and because the government is no longer willing to subsidize that cost.
For years there was an argument between the water authorities and the Treasury as to whether there is a water shortage, or whether the problem is merely one of price.
“Raise the price of water to its marginal production cost, and you will see there is no water shortage,” the “Treasury Boys” used to say. Some Treasury officials were actually willing to do away with the country’s agricultural sector, which used to be responsible for 70 percent of the demand for water.
But in the meantime, even the Treasury has admitted that beyond the issue of price and the future of agriculture, there is indeed a shortage of water from natural sources, and that something must be done about it beyond increasing prices or reducing demand.
The truth of the matter is that the shortage is potentially only in water from natural sources; the quantity of water we can produce or purchase is unlimited. We are a world leader in know-how regarding water production. Water can be produced by desalinating seawater or saline ground water, by highly purifying sewage water, and by drilling for it to much greater depths (deep under part of the Negev there is a vast ocean of water). We can also import water by tankers or pipelines. Potential exporters include Turkey and Croatia.
But all this raises the marginal cost because of high development and production costs.
AND WHAT about demand – should the government directly intervene in water consumption? There is no doubt that demand for domestic use can be drastically reduced, not only by discouraging waste and luxury consumption (i.e. private swimming pools), but also by doing much more to repair pipe leakages. Much has already been done to stop the growing of water-guzzling crops such as cotton, and introduce efficient watering systems. Industry has also done a lot to limit its water consumption. Much more can be done to use water-saving plants in both public and private gardens, and to enforce existing strict regulations regarding the washing of vehicles.
The issue finally boils down to policy formulation and decision making. The government must make strategic decisions regarding how much water to produce artificially and by what means, and on how much effort to invest in influencing the way water is used. Once these decisions are taken, it should be left to the experts in the water authorities to implement them.

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Unfortunately, the government’s decision- making process (not only with regard to water) is extremely faulty, and the percentage of strategic decisions actually implemented is relatively low. This is the rub.
To return to Miller’s and Kirschenbaum’s bill, it has more to do with what basic products (besides agricultural produce) should be exempt from taxation for social reasons – which is separate from the question of how the basic price of water (before VAT) should be fixed. We have come a long way since the price of water was fixed by a Knesset subcommittee made up primarily of representatives of the agricultural lobby but there is still a long way to go. Demagoguery and disinformation are not helpful in this regard.

The writer authored the report of the Knesset Committee of Inquiry on the Water Sector in 2002.