Balance required for river basin's survival

CONFUSED reaction to the Murray-Darling guide signals the need for rigorous analysis.

THE chairman of the Murray-Darling Basin Authority, Mike Taylor, has been having a torrid time ever since the release of the guide to the plan on October 8. He has been confronted by large and irate crowds in the regional centres he has visited; it is clear the guide, which is 260 pages long, has not been well received in the basin communities.

Spooked by the angry mob scenes, the government has moved to lower the temperature by setting up a parliamentary inquiry headed by rural independent Tony Windsor, to look into the social and economic aspects of the MDBA's proposals.

But the real position of the government is becoming more confused every day. First, we had Julia Gillard pledging during the election campaign that "we will bridge any remaining gap between what has been returned and what is required to be returned by the independent Murray-Darling Basin Authority. We will implement the plan."

Early last week, the Prime Minister reconfirmed the central role of the MDBA when she said: "Look, this is the Murray-Darling Basin Authority's guide. As an independent authority it is responsible for the next stage, which is a draft plan . . . and its process of consultation is rolling out."

This was before the establishment of the parliamentary inquiry and before Simon Crean, the Minister for Regional Australia, muddied the waters further by saying that "in the end, the government has to make the decision. It was never going to be a decision just for the MDBA. It hasn't put out a plan. The government has to put out a plan, and it will do that."

In fact, Crean is dead wrong on this issue: it is the role of the MDBA to put out the plan, although it will need to be accepted, with or without amendments, by the government.

One of the neglected aspects of these chaotic developments is the potential loss of integrity in the governance of the processes to achieve additional environmental water flows. The state governments, whose co-operation is critical to the ultimate implementation of any plan, signed up to a specific arrangement in which the MDBA holds the central role. Messing with these arrangements carries the risk that the states will simply walk away from the deal, a risk that is very real given the NSW government's recent threat to renege on its commitment to implement national Occupational Health and Safety laws.

A key question is whether the parliamentary inquiry will feed into the MDBA processes, or if it will be a completely separate and possibly competing line of inquiry. And where does this leave the MDBA's work on the social and economic issues, including that contained in the guide and the further research it has foreshadowed?

It should be recalled that the Labor government had already committed nearly $9 billion in its previous term to a combination of voluntary buybacks of water licences and the upgrading of irrigation infrastructure to recover water for the environment.

During the campaign, the Prime Minister made the surprising commitment that the government would pay full market prices to buy back any additional water licences required under the Murray-Darling Basin Plan.

What can be said about the cost-effectiveness of the money that has already been spent? The research by the Productivity Commission suggests the voluntary buybacks represent reasonable value, although there are question marks over the purchase of low security water licences.

It should also be noted that the idea of willing sellers participating in the buyback needs to be qualified by the fact that irrigators with substantial debts often face pressure from their banks to sell some or all of their water licences.

At the end of June, just over 700 gigalitres had been bought back. The guide calls for cuts of between 3000 and 4000 gigalitres.

By contrast, the larger sum of money committed to irrigation infrastructure - nearly $6bn in total - is difficult to justify. In terms of dollars per volume of water recovered, the infrastructure program is up to five times as expensive as the equivalent figure for the buybacks. Moreover, the scope for infrastructure spending varies significantly across the basin, disadvantaging those irrigation areas where upgrades, often undertaken privately, have already occurred.

The Coalition is placing great store by the scope for the infrastructure program to deliver the required environmental water flows. For practical and financial reasons, the truth is there is absolutely no hope infrastructure spending alone can produce sufficient water to meet the targets of the MDBA.

On the face of it, the infrastructure program might also be seen as assisting irrigation communities, in addition to recovering water for the environment. In the short term, at least, there may be some spin-offs for these communities as the infrastructure is being constructed.

But in terms of providing sustainable support, there is little doubt infrastructure spending is a poorly targeted instrument. There is also the distinct possibility some of this infrastructure may become stranded and uneconomic as a number of irrigators within an area take up the option of selling their water entitlements in the buyback.

Recovering water for the environment in the basin requires rigorous analysis and tough decisions. But the key is balance. Recent events do not augur well for the ultimate success of policies that will partly dictate the health of the largest river basin in Australia, as well as the prosperity of the affected communities.

Judith Sloan is a professor at the Melbourne Institute of Applied Economic and Social Research and was formerly a commissioner of the Productivity Commission.