With characteristic immodesty this week the Minister for Water Malcolm Turnbull declared it “the most important statement about the future of water any government has ever made in our country’s history”.
Yet while there has been broad support for the idea of the $10 billion Australia Day water package put together by the Prime Minister and Malcolm Turnbull, there is now growing disquiet among economists and water industry professionals about what is actually in it.
Few experts doubt that with sole control of the Murray Darling basin river system the Commonwealth government will be in a much better position to fix the problems than have been the four state and one territory governments through whose land it flows, especially given their record.
But to state plainly what the experts confide in more diplomatic terms, they doubt whether this particular Coalition Commonwealth government is the best one to do it...
Missing from the Prime Minister’s 10-point plan is the single most effective means of fixing Australia’s water problems. The government has been told about it often enough.
In August last year the Productivity Commission reported that allowing farmers to get out of water-guzzling crops and sell their entitlements to city water authorities was both financially and environmentally better than building new infrastructure such as desalination or recycling plants.
For every city other than Sydney it is technically easy to divert water from irrigators, for whom it has a low value, to city dwellers who are prepared to pay a lot for it.
In November last year in a report commissioned for the Department of Prime Minister and Cabinet Marsden Jacob Associates found that “Canberra, Sydney and Melbourne are all close to the supply grid provided by the Murray-Darling-Snowy systems which opens major opportunities for trade. Political government often finds this fact uncomfortable”.
Even in Sydney there was the opportunity for significant but limited rural-city water trade.
Rural water entitlements can be bought for 60 cents to $1.50 a kilolitre. By contrast water from a new recycling plant would cost $1.68 to $2.61 a kilolitre, and from a desalination plant $1.15 to $3.00 a kilolitre. As the report to the Prime Minister’s Department sees it the massive expenditure about to be wrought by a number of cities on engineering solutions to create more water is unnecessary. They can simply buy the water from farmers who can become richer by selling it than they could by farming.
Last Monday in a report commissioned by the Committee for the Economic Development of Australia a former ANU economist John Quiggin found the same thing. He pointed out that not only would trade make both city water authorities and irrigators financially better off, but it would also give irrigators an incentive to save water that at present is not worth saving.
“Consider the situation of an irrigation user who can implement measures to reduce losses of water through leakage or waste at a cost of $150 for each megalitre saved. With annual allocations of irrigation water commonly trading at around $100 a megalitre in non-drought years, here is currently little incentive to pursue such options. The result is that less cost-effective water saving options may be adopted in urban areas, where the price of water is around $1 a kilolitre ($1000 a megalitre),” Dr Quiggin said.
At the moment city lawns and trees are dying for lack of water than irrigators find cheap enough to waste. Trading would see us get pay less for our water than we otherwise would and farmers get more for it than they can irrigation-farming.
Why is an idea commended in two reports to the government and one to the Committee for Economic Development of Australia missing from “the most important statement about the future of water any government has ever made”?
Perhaps because one of the partners in that coalition government is the National Party.
Shortly after I arrived in Parliament House in October to begin covering economics for the Canberra Times I went to a press conference on water attended by both the (Liberal) parliamentary secretary for water Malcolm Turnbull and the (National) minister for agriculture Peter McGauran. Turnbull talked up the virtues of a scheme that would allow farmers who saved water through efficiencies to sell it to the government.
McGauran stressed that under no circumstances would farmers who wanted to get out of irrigation-intensive farming be able to do the same thing.
I emailed him later and asked why on earth shouldn’t farmers be able to sell water their entire water entitlements to whoever was prepared to pay the most.
He replied: "Governments have such deep pockets, they will inevitably win every auction and neighbors and other potential purchasers can’t compete. It is not a problem of willing sellers, it is a problem of willing buyers being swamped by the financial might of governments”.
The idea that farm water has to stay with farmers and not travel down a pipe into the city where it will be more valued has an impressive lineage. The rural patriarch Sir Henry Bolte who ran Victoria for 17 years as both a Liberal and Liberal-Country Party premier once famously declared that “not a drop of water will cross the divide to meet the needs of Melbourne''.
The result – huge infrastructure expenditure in Melbourne that was unnecessary - is about to be repeated in other cities including Canberra. A water recycling plant for Canberra is cheaper and more effective than a new dam, but it nowhere near as cheap as buying water from nearby farmers who are prepared to sell.
As a general rule the government opposes wasteful expenditure, but the Coalition’s water policy encourages it. Not only will desalination and recycling plants be built that are not necessary, but farmers will be encouraged to spend more to stay in irrigation when they would be better off getting out it.
John Quiggin says points out that if a rice farmer “spends substantial resources on new irrigation systems to reduce water use, the government will purchase the water saved as a result. On the other hand, if the farmer decides to grow dryland wheat instead of irrigated rice, policy precludes the purchase of the water saved.”
Denying farmers the right to sell water they save by abandoning irrigation doesn’t help farmers. But it might help the National Party. It’s veto over free trade in water is a demonstration of its remaining power, and the limits it is able impose on the power of true economic liberals such as Malcolm Turnbull. When Mr Turnbull and the National Party leader Mark Vaile met a delegation of farmers to discuss water this week it would have been in no doubt that Turnbull didn’t pull all the strings.
Denying farmers the right to give up their water for city use also appeals to the romantic ideas many of us have about the worth of farming. But as John Quiggin points out most of us don’t think that way about farmers who give up their land for city use.
“A useful way to think about this issue is to mentally substitute ‘land’ for ‘water’. Cities have always grown by converting farmland to residential use… few would support a total ban on the conversion of agricultural land to residential use, or a policy that required cities to accommodate all future population growth within their existing boundaries.”
Just as allowing cities to use what was once rural land hasn’t meant the end of farming in Australia, neither would allowing cities to use what was once rural water. Urban water use is small compared to irrigation. As the Prime Minister Howard noted in his Australia Day address irrigation soaks up roughly 70 per cent of all the water used in Australia. Quiggin calculates that even if 20 per cent of all the urban water demand in Australia was met by transfers from farmers, irrigation would contract by only 6 per cent.
In announcing his $10 billion Australia Day water plan the Prime Minister said it was detailed and costed. But officials from his Department of Finance revealed in Senate hearings this week that that what they were actually given to look at before the announcement amounted to a single sheet of paper. They had neither the detail nor the time to cost it.
Nor were they asked to the cost the alternative proposal recommended to the government by the Productivity Commission, and Marsden Jacob on behalf of the Prime Minister’s Department.
They might have found that the $10 billion Australia Day water plan is an expensive and wasteful way to fix Australia’s water problems (but no more expensive and wasteful than was necessary to placate the National Party).
In broad terms the Commonwealth is to spend $6 billion helping install water saving technology on farms that the farmers themselves haven’t thought it worthwhile to install given the low price they pay for water. It’ll get to keep half of the water saved, and will spend another $3 billion buying back over allocated water licences. The water it ends up with will be “managed to restore the health of the rivers and wetlands”. It won’t be made available to cities.
A government composed of economic liberals, instead of Nationals and Liberals, would allow the market to allocate water to the places that need it most.
We are about to waste billions on recycling plants and desalination plants that we probably don’t need because we don’t have one.