The Independent Pricing and Regulatory Tribunal (IPART) is proposing an increase to water bills of $203 a year for the average household by 2012.

The price will rise by $95 a year for the average household from July 1.

Almost half of the ultimate price hike will be used for the desalination plant under construction at Kurnell.

The money from the increase will also be used to pay for water recycling schemes in western Sydney.

IPART head Michael Keating says the increased charges are needed to pay for the infrastructure. He does not think the they are too severe.

"I don't think this is the element of the whole household budget that is going to break the household budget," he said.

Water Utilities Minister Nathan Rees agrees the higher water prices are necessary.

"There's no shortcuts on this. If we want infrastructure that sets us up and sets our economy up for the future, we have to pay for it," he said.

"That is a fact of life. It's unpalatable - I'd rather we didn't have to do it - but we do and the best thing we can do is to allow the independent umpire to come up with what they think is a fair and reasonable cost of water to enable us to deliver infrastructure."

'Scrap the plant'

Opposition Leader Barry O'Farrell says the Government could spare households from the price rise by scrapping the plant.

"These massive increases in water rates simply rub salt into the wounds of working families across this city," he said.

The Greens have again called for the money set aside for desalination to be spent on water saving schemes.

But Sydney Water managing director Kerry Schott says the plant is badly needed.

"The rainfall in our catchment is not in any way steady, it's extraordinarily volatile," she said.

"The thing about desalination is it doesn't depend on rain. It gives us an extraordinarily strong insurance policy on water supply."

'Water savers punished'

Meanwhile, the Combined Pensioners and Superannuants Association says the increases in domestic water charges will punish Sydney households that use relatively little water.

Spokesman Paul Versteege says a household using just over 200 litres of water a day will be paying 28 per cent more in real terms by 2012.

Mr Versteege also disagrees with the decision against introducing the late fees and credit card charges proposed by Sydney Water.

"IPART has rejected that and that is a shame because it means that people who do pay on time and who pay cash, including pensioners, subsidise those people who don't and who put the water bill on the slate," he said.

Source: By Australian Broadcasting Corporation