Mr Noonan said a “subvention” was being made from the local government fund to go to the water metering company.

He said Revenue collects the money and the total property tax returns are then transferred to the Local Government Fund for services.

People Before Profit TD Richard Boyd Barrett said proceeds from the property tax were being used to set up Irish Water. “The Government, in levying this unpopular, regressive austerity tax, tried to neutralise opposition to it by saying that all the moneys collected would go back into local areas and services,” said Mr Boyd Barrett. “We then discovered not a single cent would go towards local services, but would be used to meet the start-up costs of Irish Water.”

The latest twist in the Irish Water controversy came as Tánaiste Eamon Gilmore said charging extra fees for families with young children is not on the agenda.

The Labour leader moved to calm fears households would be hit by double-whammy charges as the controversy over the massive costs of Irish Water continued to dominate the Dáil.

“The story that there is some kind of a second tier of charging for families with children has no basis,” said Mr Gilmore. “No decision has been made in regard to the levels of charges that will be applied and how they are going to be applied. Charging for water will be on the basis of a metered regime and there will be a free allowance for households, with charging to be above and beyond that.”

The Tánaiste said a regulator would set the metering costs, and the Government would then set the level of the free water allowance.

Fianna Fáil leader Micheál Martin accused the Government of confusion and evasion regarding the revelation that 299 staff at Irish Water are entitled to bonuses of some €2.1m. Mr Martin said Irish Water was like a “secret service” until facts began to trickle out during the row over the €180m start-up costs, almost half of which will go on outside consultants.

Mr Martin ridiculed Government confusion over the bonuses as ministers were unaware they had been sanctioned by spending watchdogs.

“The way Irish Water was established as a subsidiary of Bord Gáis has led to a convoluted quagmire,” said Mr Martin in Leaders’ Questions. “That is why it was revealed bonuses will be paid to the staff of Irish Water, despite the minister, Joan Burton, saying that would be astonishing, and despite Minister of State Brian Hayes saying two days ago that it was a public relations disaster and that paying bonuses would not be justified.

“The Taoiseach’s spokesman said the same, namely, that no bonuses would be paid. We then learned, yes, bonuses will be paid, that the Government approved the payment of bonuses, and that the Economic Management Council approved the structure of the establishment of Irish Water as a subsidiary of Bord Gáis, resulting in the reality of bonuses being paid.”