The War Over Water


Earlier this month, sparked by a provocative comment by Kevin Rudd at a book launch, there was a debate in the media about the relative merits of Liberal and Labor as economic reformers.

Given how unpopular the prospect of "economic reform" is among voters, you would think "greatest reformer" would be more of a poisoned chalice than a laurel wreath. But that didn’t stop some pundits jumping right in on the meaningless debate, asking whether the Hawke-Keating decision to float the dollar and deregulate the banking industry trumped the Howard-Costello GST and industrial relations deregulation. Or perhaps Paul Keating’s superannuation crusade was the most important "reform" of all?

Our online media colleagues over at Crikey felt it appropriate to issue an editorial about how well our nation’s ruling classes have served us over the last two decades. Australia is, they claimed, "a healthier, fairer and more just society than a generation ago", a claim open to considerable scrutiny, especially given Australia’s rising levels of income inequality, Aboriginal incarceration and chronic lifestyle disease.

The claim that Australia made tough but ultimately beneficial decisions in the 1980s and 90s to open up and liberalise our economy dies hard — yet it continues to offer considerable appeal to many journalists and commentators.

So how well have our ruling classes served us, really?

Australia’s long boom of 1992-2008 was certainly impressive by rich world standards. But if we measure national progress merely by economic growth, we ignore all sorts of hidden costs and damages. Modern economics has a measurement bias in favour of certain things, such as material goods that can be traded across borders, and leaves other things out of its accounting system altogether, such as irrevocable damage to the biosphere. In a new study, Nobel Prize winning economists Amartya Sen and Joseph Stiglitz point out why GDP alone is not an effective measure of growth.

But if you really think Australia has a modern, open, liberal economy, stop and think for a moment about one of the most important tradable commodities of our time: water

In this country, water — the precious stuff of life itself — is traded on what passes for an open market. That is to say: you can theoretically buy it from farmers along the Murray-Darling Basin. The problem is, the sham that passes for a water market in Australia is so dysfunctional it makes the central planners of the Soviet economy look like paragons of laissez faire deregulation.

As we have explained before at New Matilda, Australia’s water policy is stuck in a pre-Federation mindset. The states, which control water rights and allocations, jealously guard the interests of their farmers and irrigators — at the expense of downstream states and the environment. The typical scapegoat for our water problems is Cubby Station, which sits at the top of the Murray-Darling Basin and has the ability to capture untold megalitres of floodwater from the Balonne and Culgoa Rivers. But the real culprit are the various state governments, who over-allocated water permits in the first place and appear utterly unable to put the interests of future generations ahead of the narrow sectional interest of landowners and the agricultural lobby.

Did you know that Victoria, South Australia and New South Wales are currently fighting a trade war over water allocation rights? Yes, much like a 1930s-style tariff exchange, the various states of our 107-year old federation are fighting each other over how much water they will allow the Federal Government to buy back for the sake of the environment. This is not surprising, as it was the states who over-allocated the various water rights along the Murray-Darling in the first place. But the result is a tragedy for the lower Murray. This is why South Australia was threatening to sue Victoria in the High Court over its water policy. Victoria eventually relented, but little extra water is finding its way downstream.

The current problems are basically of Victoria’s making. After a decade of John Howard putting the issue in the ‘too hard’ basket, Kevin Rudd came to office promising to crack heads in the spirit of "cooperative federalism" to "save the Murray-Darling". That didn’t last. Victoria essentially refused to sign up to the national dialogue, deciding instead to put a ludicrous 4 per cent cap on the amount of water it would allow to be sold back (remember that many of these water allocations are fictional anyway, having been issued decades ago in wetter years, the likes of which we will never see again).

The result was that when Penny Wong went shopping on the national water market, given the parlous drought afflicting the lower Murray and South Australia in particular, she really only had NSW and Queensland to buy from. Therefore, most of the water was bought from NSW irrigators. Alarmed by the amount of water "leaving" the state, and enraged by the intransigence of its southern neighbour, the NSW Government then banned extra water being sold to the Feds.

This week, Wong managed to negotiate a Victorian-style cap with NSW, but it effectively makes it as hard to buy back water from NSW as it is from Victoria. No wonder Nick Xenophon is angry. "This so-called breakthrough agreement on water is a joke," he told reporters this week.

Meanwhile, irrigators continue to struggle due to the drought. In some cases, water rights are even acting as security for bank loans.

The whole sorry saga illustrates how far we have to go in water policy in this country. It’s the classic problem of the "prisoner’s dilemma" in environmental economics, where various governments and corporations can only successfully manage precious resources in cooperation. But cooperation is ever fleeting in politics, and in the meantime there are countless temptations to punish adversaries and cheat on the quotas.

"Economic reform"? Not when it comes to water or climate change policy, whether under John Howard or Kevin Rudd.

Ben Eltham is New Matilda's National Affairs Correspondent.