Mighty river of trouble heading Gillard's way

THE Murray-Darling Basin report will pit the independents against the Greens.

THE Murray-Darling Basin Authority has produced a poisoned chalice for the Gillard government: a conflict of interest between the two power centres on which it formed minority government, the Greens and regional Australia.

At the start of the new parliament where Labor's majority depends on the Greens and regional independents in tandem, the Murray-Darling repair task threatens to tear them apart.

Beneath its complexities the dilemma is stark: returning enough water to make the basin sustainable in environmental terms will impose economic and social hardship on irrigators, farmers, agricultural industry and communities by reducing gross regional product.

It is a game-changer, a symbolic and practical cause with the potential to trigger a revolt.

Superimposed on Labor's plan to price carbon this term, the Murray-Darling crisis will deepen the schism in Australian politics between better-off city-based voters ready to impose economic hardship for environmental virtue and the pro-Coalition regional, resource state and suburban battler voters hostile to income sacrifices for uncertain environmental gains.

Tony Abbott wants to exploit this schism to ruin the Gillard government. Sounds dramatic? Only if you cannot grasp the forces that during the past year transformed Abbott from a political nobody to the verge of high office.

Yet much of the nation's political conversation does misunderstand these forces precisely because Australia's media lacks the professionalism to report on grassroots conservatism, the flaws in climate change and environmental policy agendas and the legitimacy of people complaining about the burden of sacrifice.

Home to 40 per cent of the nation's agricultural production and two million people, the Murray-Darling Basin faces irretrievable damage without a sustained policy reversal that returns water to the rivers.

Initial reactions suggest that finding the right policy balance will defy the wisdom of Solomon, let alone Julia Gillard and her Environment Minister Tony Burke.

The National Farmers Federation, in effect, has declared political war on the Murray-Darling Basin Authority report, with its president, David Crombie, branding it as "half-baked".

"Thousands of jobs will be shed, inflicting immense direct pain on regional communities," Crombie said, warning that Australia's food industry would take a "massive hit" with families having to pay more for food.

By contrast, Greens spokeswoman Sarah Hanson-Young said the figures used by the authority were the minimum needed to save the river system. The aim was to make the system sustainable, "not just for the next 10 years but for the next 100 years" and "to do that we can't afford to have the recommendations watered down".

The time to avoid the difficult decisions was over.

The Greens will tolerate no weakening of the report's position while the peak farm body will tolerate neither the specifics nor the framework of the report.

The scale of water reductions is immense, with the authority recommending a 27 per cent to 37 per cent average reduction in water for consumption.

This becomes 40 per cent to 45 per cent in some areas.

The report says: "Several regions appear to be at a relatively higher risk of substantial social impacts including in the northeast of the basin, the border rivers, Gwydir, Namoi and Macquarie-Castlereagh regions and, in the southern basin, the Lachlan, Loddon, Murrumbidgee and Murray regions."

Hence Coalition water spokesman Barnaby Joyce's line that in some areas "the whole fabric and social fabric of that community is decimated". He warns of a tipping point where regions "have to be closed down".

The extent of conflict is revealed in the authority's analysis showing the extra water needed for the environment is between 3000 and 7600 gigalitres a year (a huge variation). Concerned about the detrimental effect, the authority took the critical decision to examine scenarios only at the lower end, in the 3000-4000 GL a year range. It is unsurprising, therefore, that Peter Cossier, director of the Wentworth Group of Concerned Scientists, while accepting the " hydrologic integrity" of the report, said the authority had to look beyond 4000 GL a year, a view sure to enrage farmers and communities.

The authority is under attack and partly apologetic for its economic estimates, saying the loss in agriculture is judged to be $800 million a year, about 13 per cent of current agriculture production, but it concedes the short-term harm may be greater.

Policy change is essential to repair the basin and create a durable platform for ongoing agriculture. The challenge is to find the best trade-off between environmental gains on one hand and social and economic damage on the other. The truth is the whole process is riddled with uncertainty.

Under the Water Act, the authority's mandatory task is to give primacy to the basin's water needs and ensure environmental assets are not compromised. The Productivity Commission in its March report expressed alarm about this mandate: "Good science is a necessary but not sufficient basis for optimising the use of the basin's water resources. The value people place on environmental outcomes, the opportunity cost of forgone irrigation, and the role of other inputs such as land management must also be considered. If the Water Act 2007 precludes this approach, it should be amended."

The commission said the policy task was unprecedented in Australia, with few parallels anywhere in the world. It worried there was "insufficient forethought given the design, scale and implementation" of such water initiatives.

Its fear is that one historical misallocation (too little water for the environment) may be replaced by another misallocation (higher than needed social and economic costs) and that current arrangements offered no means to ensure the best trade-off.

There is one certainty: the Coalition will recruit the Productivity Commission report to drive its critique.

The national government has pledged $3.1 billion to purchase water from irrigators and $5.8bn to upgrade infrastructure, yet the Productivity Commission fears for the integrity of such funds, let alone what comes next.

It believes infrastructure funding, beloved by politicians as the easy option, is "rarely cost effective", while purchasing water from willing sellers is the best economic method.

Last week's report is only a guide to the proposed basin plan. The final deal will be cleared with the states before being stamped by Burke next year. In the interim he optimistically predicts parliament will have the maturity to approve the final plan. Perhaps.

His own ranks are divided but Abbott, by interest and by instinct, will prioritise regional communities before the rivers and crusade to accentuate Labor's intractable dilemma.