Water act has run its course

IN its existing form the Murray-Darling plan will not work out the way Labor hopes.

EVERYONE agrees that Mike Taylor, the outgoing chairman of the Murray-Darling Basin Authority, is a good guy. He's tried his best in the context of a dud act. But those regional meetings with angry irrigators everywhere, and the waft of burning paper in the air as the guide was tossed into bonfires, couldn't have been fun.

He has announced his intention to stand down from the role and has urged the federal government to "reconsider the next phase of the plan". In other words, he is telling the minister, Tony Burke, that to continue with the present arrangements is the wrong way and there is no alternative but to go back.

Many of the problems that have beset the MDBA stem from the faulty drafting of the Water Act and the primacy that the environment is given over social and economic considerations in determining new Sustainable Diversion Limits. By using the external affairs power in the Constitution to establish the act in the first place, it naturally followed that the environment would be placed ahead of social and economic factors, given the need to protect the internationally recognised Ramsar wetland sites in the basin.

Although the objects of the act refer to optimising between environmental, economic and social factors, the section dealing with the determination of the Sustainable Diversion Limits - which in turn establishes the new environmental flows - gives priority to the environment over economic and social considerations.

Burke thought he had resolved this issue by getting some uninformative advice from the Solicitor-General to the effect - to the extent the advice really said anything - that the authority could take into account all three considerations on an equal basis.

Clearly, Taylor and his colleagues were not convinced and obtained new advice that concludes the authority "cannot compromise the minimum level of water required to restore the system's environment on social or economic grounds". One of the problems for the government in knowing where to head now is that this advice will have been obtained by the authority; Taylor's resignation does not change this and it seems unlikely that the other members of the authority would disagree with their outgoing chairman on this point.

Nonetheless, Burke and Julia Gillard are giving the impression that they will be able to crash through on this issue and Burke has informed us the timetable would not be altered because of Taylor's resignation, notwithstanding that the timetable has already slipped. We were expecting to receive the draft plan in the middle of the year. This became a guide to the plan but the release of this was delayed because of the election. There is no way that a draft plan will see the light of day before mid next year.

It should also not be overlooked that nothing happens until the state governments finalise new water plans. The original start date was 2014 for all states bar Victoria, which had a later starting date of 2019. It is all but impossible to see how the earlier date can be met.

One of the conundrums arises from the fact that cuts to water entitlements of between 3000 and 4000 gigalitres were mentioned in the guide. Assuming these figures were derived largely from environmental considerations, a lower figure in the draft plan would not only invite the hostility of environmental groups but potentially also lead to legal challenge.

The water reform process has hardly been starved of funds, although the government has had much more success getting the water buybacks away compared with the infrastructure projects designed to return water to the environment. Of a total budget of nearly $6 billion, only $437 million has been spent on infrastructure projects. While the minister emphasised "we will only spend it in the most cost-effective way", there must be a

feeling in the basin that projects will never be found that meet the government's requirements.

Now there is a change of government in Victoria, it is also likely that the truth behind the too-good-to-be-true food bowl project in northern Victoria, pushed by the Brumby government, will be revealed. Whether the proposed expenditures will go ahead is now uncertain. There has also been a glitch with the on-farm water efficiency grants, with a dispute as to whether the grant constitutes a form of taxable income in the hands of the irrigators. This is holding up payments under this program.

With Taylor's resignation, the term schemozzle is apt in describing the course of water reform; this is presumably what Taylor had in mind when he advised the government to "reconsider the next phase of the plan".

The rains may provide the excuse the government needs to undertake this reconsideration. In contrast to the claims of a number of environmentalists that it would never again rain heavily in the basin, the rains have come and the mouth is now open, the Lower Lakes have filled, the wetlands are wet and the river gums are getting a much-needed drink.

The price of temporary water has fallen to close to zero and irrigators are likely to receive close to 100 per cent of their entitlements. Those who have sold water entitlements to the government may well think they have received a very good price, although the price of licences is roughly equivalent to the discounted cash flows associated with yearly allocations and one year of heavy rainfall has only a limited effect.

Hope for salvaging anything from the water reform process now turns on the government being prepared to revise the Water Act, possibly using an alternative head of power in the constitution. This should be undertaken before the Greens assume the balance of power in the Senate.

There needs to be renewed discussion with the states. Taylor is correct to point out that the plan cannot achieve everything in terms of a better environmental outcome for the basin as well as meeting the needs of irrigators and sustaining communities. Without the co-operation of the states, nothing will be achieved.

The alternative that Burke and Gillard think is still on the table - that they can fudge the issue of the act and that the authority can steer some middle course whereby everyone will be happy or equally unhappy - is not feasible. It is time to return to the drawing board, redraft the act and work towards a plan with a clear optimising framework in co-operation with the states.

Judith Sloan is an economist and was commissioner of the Productivity Commission.