Billions down the drain
That’s the headline on my opinion piece in yesterday’s Fin, over the Fold
Billions down the drain
The resignation of Mike Taylor as chair of the Murray Darling Basin Authority reflects a dispute over the interpretation of the 2007 Water Act, under which the MDBA has drawn up its draft Basin Plan. The Guide to the Plan, released a couple of months ago, attracted immediate outrage. Copies were burned at public meetings held in communities in the Basin.
The public dispute has arisen because the MDBA has interpreted the Act as requiring that environmental needs for water should receive absolute priority, while the government says that the Act requires environmental, economic and social impacts of policy to be taken into account.
Regardless of the legalities, a sensible policy must take all impacts into account, and the MDBA did so in the draft plan. The central argument underlying its proposal for a return of 3000 to 4000 gigalitres of water to the environment was that anything less would not be sufficient to restore ecosystems to a sustainable level while anything more would impose unacceptable social and economic costs.
The real problems with the Basin Plan and the Water Act go much deeper. They involve policy mistakes made by the Howard Government when the National Water Action Plan was announced, and perpetuated under Labor.
More importantly, they reflect a misconceived policy focus, in which discussions of the social and economic impacts of planning for the Basin are discussed almost entirely in terms of the size of the irrigated agriculture sector.
The centrepiece of Howard’s Plan was a $10 billion bucket of money allocated to fixing Australia’s water problems and particularly those of the Basin. The plan was conceived almost entirely in engineering terms, and based idea of saving water currently wasted through processes like seepage from unlined channels.
In reality, most water ‘lost’ through seepage returns to the environment in one way another. Very few cost-effective measures to increase water use efficiency have been identified.
Howard’s plan included $3 billion allocated to the purchase of water rights from irrigators willing to sell them, but this was seen as a last resort, and almost nothing was done in his government’s final year of office.
When Labor came to office, the priorities were reversed and the main focus was on purchase from willing sellers. The effort was highlt successful. Entitlements with an average annual allocation of 700 GL have been purchased at a total cost of around $1.5 billion. The $10 billion allocated to the MDB is more than sufficient to purchase enough water for the sustainable environmental allocation of 3-4000 GL identified by the MDBA. There is no need for any cuts in entitlements for irrigators who do not wish to sell.
But Labor’s Water for the Future Plan no fundamental changes in policy. The allocation of more than $6 billion to engineering works remained. Critically, the MDBA continued to work on the basis that its job was to identify the amount of water needed for the environment. It was up to governments to work out how the water would be obtained.
This approach made a nonsense of modelling work on the economic and social impact of the proposals. Without assumptions on the way in which policy is financed and implemented, it is impossible to determine the social and economic impact.
Unsurprisingly, this approach was framed, in public discussion as proposing ‘cuts’ to irrigators’ allocations. Despite repeated statements from the Gillard government that no one would have their entitlement reduced unless they chose to sell, the MDBA did nothing to dispel this presumption, which has remained dominant – media coverage of the issue has continuously referred to “water cuts”.
The economic impact of purchases of entitlements is radically different to that of across-the-board cuts, with or without compensation. Expanded purchases will leave irrigators better off, not worse. The main potential losers are farm employees and business in country towns, who will face reduced demand if farmers shift from irrigation to less intensive dryland agriculture. Even here, the impact will be modest in most parts of the Basin, where irrigation is a relatively small part of economic activity. But some towns will face a significant adverse shock.
A focus on the real winners and losers points up the foolishness of spending billions of dollars subsidising irrigation infrastructure. This money could be far better spent on social infrastructure, aimed both at addressing existing deficiencies and at assisting the adjustment to new sources of economic activity, including tourism and service activities as well as dryland agriculture.