Explained: How an $80m water scandal swamped the Morrison government

Tax havens, an $80m deal and question marks over the role of senior government MPs including a minister and a former deputy PM. Matt Smith unwinds the water buyback scandal.

• Ex-Liberal minister calls for water royal commission

The name of a Washington Hotel became a synonym for political scandals in the 1970s. Now the buyback of water entitlements is creating an entirely new Australian scandal of the same name. There are links to an offshore tax haven, references to hopeless government haggling over water purchases, an $80 million deal and question marks over the role of senior government MPs including a current minister and a former deputy prime minister. National Affairs Editor Matt Smith unravels the details of the escalating furore.

What are water buybacks?

Irrigators along the Murray Darling have licences to remove water from the river system.

But in many years, too much water is being taken out.

The government therefore offers buy back a percentage of water entitlements from irrigators so that water can remain in the river system and hopefully contribute to its health.

Minister for Energy Angus Taylor at a press conference at an ice cream parlour on April 17. Picture: AAP Image/Mick Tsikas

What is Watergate?

In July 2017, the Department of Agriculture and Water Resources purchased 29 gigalitres of water for nearly $80 million from a company called Eastern Australia Agriculture Pty Ltd.

EAA’s original asking price was $2200 per megalitre but the department paid $2745 per megalitre.

Former Murray Darling Basin senior staff member Maryanne Slattery — in a report she co-authored for the Australian Institute — said the department had paid 139 per cent higher than the Commonwealth had previously paid for the same type of licence and 85 per cent higher than the average price for more reliable types of water licence. Questions were also raised about the company’s ability to deliver the water back to the river system.

The lure of the Cayman Islands

The British Overseas Territory is ranked as the world’s fifth-largest financial centre.

Companies and individuals pay no direct tax, and financial institutions pay a flat fee to operate in the country.

These terms can make it a great place to do business for companies that want to pay less tax.

Tax havens like the Caymans have been described as “sunny places for shady people”.

But it has also been suggested that nearly every Australian is guilty of profiting from the tiny Caribbean holiday spot through the investments made by our superannuation funds.

What is the Cayman Islands’ link to Watergate?

Eastern Australian Agriculture’s parent company, Eastern Australia Irrigation, is based in the Cayman Islands.

It has been reported the company recorded a $52 million profit on the deal.

There is no evidence of illegal behaviour or wrongdoing on the part of the company.

But the company’s address has renewed calls for Australia to crack down on businesses operating in Australia but based out of tax havens.

Energy Minister Angus Taylor and former Depurty PM Barnaby Joyce at a NSW cattleyard.

How are Angus Taylor and Barnaby Joyce involved?

Angus Taylor, the now Energy Minister, was a director of Eastern Australian Agriculture from June 2008 until ­November 2009, and a co-founder and director of Eastern Australia Irrigation until 2013, when he stepped down before entering parliament that year.

A spokesman for Mr Taylor has said the “minister concluded all association with EAA and related companies prior to entering the parliament … had no knowledge of the Federal Government’s water buyback from EAA until after it occurred … (and) received no benefit from this transaction”.

Nationals MP Barnaby Joyce was agriculture minister at the time the deal was signed off, but has repeatedly avoided answering questions about whether he had asked where the profits from the taxpayer-funded water buyback would flow.

He has said he didn’t know Mr Taylor at the time and hadn’t discussed the sale with him.

What does Labor want to do about it?

Labor has called for a judicial inquiry that examines the operations of the water buyback scheme from 2017.

What does the Coalition want to do about it?

Agriculture Minister David Littleproud has asked the Auditor-General to look into the controversial $80 million purchase, as well as other purchases dating back to 2008.

What do the Greens and Centre Alliance want to do about it?

Both parties, which are set to play a major role in the next parliament with crossbench power, have called for a Royal Commission into the entire plan. They argue a proper commission is the only way to compel witnesses and gather the evidence needed to get to the bottom of the issue.