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John Quiggin

Seize the day for the Basin

John Quiggin Australian Financial Review

28 February 2008

After an election campaign in which each side sought to look as similar as possible to the other on most issues, John Howard warned, quoting Paul Keating in a similar situation, ‘change the government and you change the country’. He was right.

The changes go beyond the dramatic symbolism of Kyoto and the apology to indigenous Australians. All sorts of shibboleths that seemed to represent immovable obstacles to policy progress have quietly ceased to be relevant. Recent policy announcements regarding the Murray–Darling Basin are just one example.

At least since the National Water Initiative in 2004, it has been clear that the problems arising from overallocation of water in the Basin could be addressed only if governments were willing to buy water rights back from irrigators. Ecologists, economists and environmental organizations all made the same point, but ran into a brick wall of opposition from politicians and irrigator organizations.

Under a succession of ministers, the Howard government treated buybacks, or even transfers between catchments, as last resorts, to be pursued, in the words of former Parliamentary secretary Gary Nairn, ‘only when all other viable alternatives have been exhausted’. Even when Nairn was replaced by Malcolm Turnbull, who clearly understood the problems, progress was glacial.

Turnbull finally secured agreement to allow buyback of water, but only if it was saved as a result of on-farm efficiency improvements. The idea that farmers might be allowed to sell their water assets and invest the proceeds elsewhere, remained beyond the pale. This limited initiative had produced little or nothing when the government lost office.

Three months after the change of government, the seemingly immovable barriers to action have disappeared. The Minister for Water, Penny Wong, has announced a tender to buy water rights back from irrigators willing to sell, allocating $50 million for the current financial year.

This is a radical step. Yet, as in other areas, the Rudd government has sought to emphasise continuity rather than change. Interviewed on the 7:30 report on Tuesday night, Wong ignored repeated invitations to draw a contrast between the policies she was announcing and those of the previous government.

Of course, $50 million is nowhere near enough to fix the problems of the Murray-Darling Basin. But, with any new initiative of this kind it’s sensible to test the market first, before entering on a larger scale. Prices of permanent water allocations have risen as high as $2000 a megalitre in the current drought, but a longer-term price of $1000/ML seems more likely.

And, considered as an allocation for the remaining six months of this financial year, $50m is a good start. At a price of $1000/ML, it would cost $500 million to buy back 500 gigalitres, thereby reaching the target for environmental flows agreed in the National Water Initiative. With expenditure of $100 million a year, this target could be reached in five years; a slow pace, but much better than anything achieved under the previous government.

Unfortunately, as with the Garnaut report on climate change, the targets are shifting. Even before the current drought, the expert evidence suggested that a reduction in allocations of 500 GL was not nearly enough, and that at least 1500 GL would be needed to restore the health of the river system.

The drought and the likelihood that climate change will mean more such droughts in the future have complicated the picture further. The Sustainable Yields analysis being undertaken by CSIRO suggests that, if projections of a hotter and drier climate in South-Eastern Australia are realised, average runoff in some parts of the Basin could decline by as much as 50 per cent by 2030.

Such an adjustment could not be managed by buybacks alone, but they are an important part of the solution. Under the principles established by the National Water Initiative, the risks of climate change are supposed to be borne by water users, in the form of reduced allocations or reduced security. In practice, substantial adjustment assistance will be necessary, and buybacks of already-reduced allocations would be one way of providing this.

Buybacks of irrigation water rights, and improvements to water markets are not, on their own, a solution to the problems of the Murray-Darling Basin. But they are essential if further progress is to be made. The Howard government knew this, but could not bring itself to act. The Rudd government has shown itself capable of decisive action. Now it needs to follow through with a comprehensive national water policy.

John Quiggin is an Australian Research Council Federation Fellow in Economics and Political Science at the University of Queensland.

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