The Productivity Commission (PC) is continuing its lonely war on behalf of taxpayers and economic efficiency with its latest document on the Murray-Darling Basin Plan (MDBP), an interim report on its review of the implementation of the plan.
For more than a decade, the PC has railed against trying to achieve the water-recovery goals of the MDBP through anything other than water buybacks, particularly targeting taxpayer funding for “efficiency measures” such as on-farm irrigation infrastructure, which amounted to taxpayers paying farmers and irrigators for investments they should have made themselves, and which were much more expensive per gigalitre of water saved than water buybacks. The National Water Commission also fought the good fight against this scam — a particular favourite of the Nationals — before the Abbott government abolished it for being too independent.
The PC’s interim report takes aim not merely at “efficiency measures” but also at two other shortcuts that have been incorporated into the plan: “supply measures” (“which allow for achievement of equivalent environmental outcomes with a lesser volume of water. Examples include using pumping stations, regulators and levees to deliver water to lakes and floodplains without creating overbank flooding”) and “constraints easing” (“to overcome some of the impediments to delivery of water down the system. They can include changes to physical features such as crossings and bridges, as well as negotiating easements where private land is flooded”).
Back in 2018, the PC warned about each of these, saying that the associated risks were high and that the measures weren’t progressing as quickly as they should. However, it held out hope that supply measures, which can be developed by state governments, could prove cheaper than water buybacks.
In the intervening five years, however, and with the “reconciliation” deadline ostensibly looming next June (the government is currently proposing to move that to 2026), supply measures and constraints-easing, due to foot-dragging by states, have provided less than half of the amount intended, leaving a 315-gigalitre-a-year shortfall, while “efficiency measures” have contributed less than 6% of the amount allocated for them.
In contrast, virtually all of the 2075 gigalitres/year of water scheduled to be obtained through water buybacks or large-scale infrastructure has already been obtained — in fact, much of it was obtained before the plan commenced in 2012. That’s despite the Nationals imposing a ban on water buybacks in 2015.
The MDBP has been accompanied by a constant litany of complaints from the Nationals, irrigators and some regional communities that water buybacks destroy Basin towns. And there have been some impacts on smaller communities:
People who sold water entitlements were compensated at market prices, with proceeds often funding on-farm capital works, or market exits. Larger and more diverse regional centres in the Basin have largely adjusted to less water. However, there have been negative socio-economic flow-on effects in some small irrigation-dependent communities, particularly following major irrigators selling large parcels of entitlements. Some Basin communities saw agricultural employment fall rapidly, without offsetting growth in other employment areas (the negative effects have only been slightly tempered by improvements to tourism resulting from improved ecological outcomes).
But what’s remarkable is that there has also been a marked increase in agricultural production: the PC says “the gross value of irrigated agricultural production in the Basin increased by about 12% between 2013 and 2018, despite the volume of water used in irrigation declining by over 16% over the same period”.
This is exactly as economists predicted: once water was tradeable, and lower-value users could sell water either into the market or to the government, the overall efficiency of the Basin improved. And it’s exactly the kind of productivity growth that we’re being told Australia is currently lacking — but it’s unlikely you’ll hear anyone trumpeting the great productivity success story of water buybacks.
The PC’s interim recommendation, unsurprisingly, is to get back to water buybacks. “The Australian government should develop a renewed approach to water recovery, including staged voluntary purchases. Waiting until reconciliation (now proposed for the end of 2026) to address the shortfall will perpetuate uncertainty for Basin communities and risks further increasing the cost of water recovery.”
And if there are cases where small communities are affected by buybacks, there should be “a commitment from Basin governments to assist communities, where warranted, to transition to a future with less available water. Adjustment assistance should build on the evidence about what programs work and the regional economic context.”
The PC also wants to see Indigenous peoples more engaged as partners in the implementation of the plan. “Basin governments should publicly report on how water resource plans deliver on First Nations objectives and outcomes, and strengthen the capacity of Aboriginal and Torres Strait Islander peoples to engage in Basin Plan activities.”
Labor needs to move swiftly on the plan, even though this is only an interim report. The MDBP will always be sabotaged by the Nationals while the Coalition is in power. Water buybacks should resume as quickly as possible; they will help further improve the productivity of a crucial sector of the economy.
