Ireland could face a mini-budget of over €500 million if Irish Water fails a crucial EU test.
That's the warning of the European Commission which says the new system of water charges outlined last November poses major questions for Irish Water - and its ability to pass the all important 'market test'.
A draft memo seen by Today FM says the new regime will mean Irish Water's revenue will fall by €21 million - while the government could also be indirectly subsidising Irish Water by issuing a €100 'water conservation grant' to every home.
If both of those factors are included, the EU's statistics agency could take the view that Irish Water is effectively a subsidiary of the government - and that its losses will therefore count towards the national deficit.
In 2015 this is all the more important - as the final task under the Troika bailout programme is to bring the government's deficit below the equivalent of 3% of GDP.
As it stands, the government aims to go just below this target - but a Eurostat ruling against Ireland would inflate the deficit by around €550 million and mean the government could miss the target.
If this was the case, a mini-Budget might be needed around the summer months to make up the lost ground.
Cabinet ministers are playing down the report and say they're confident Irish Water will pass the necessary tests.
However, their logic appears to be somewhat contradictory, as when the original regime of water charges was announced, the government insisted the charges were already as low as possible - only then to lower them further in November.
When the original scheme was unveiled, Minister Phil Hogan had argued that the charges could not be lowered without increasing the government subvention, which in turn would force a breach of the Eurostat rules and a failure of the market test.
Our political correspondent Gavan Reilly filed this report for Today FM's National Lunchtime News:
The warning about budgetary matters is not the only advice contained in the European Commission document.
It also warns that the four-year cap on water charges means there is now virtually no incentive for families to save water - as the bills have been reduced to such a low level and will be capped until early 2019.
Elsewhere it says that, although it is still possible, households would have to use water "parsimoniously" to have any chance of 'beating the meter' and reducing their bills below the government's prescribed caps.
The European Commission also warns that the role of the energy regulator could be fatally undermined by the imposition of a new charges regime.
It says the government has 'over-riden' the Commission for Energy Regulation by imposing a new charges regime in place of the one the CER had overseen.
"As a result, the independence from political influence of the CER in its future regulatory functions could be at risk, not only in the water sector but also in other areas that fall under its mandate."
