Water in the election

lin-crase-thumb Professor Lin Crase
Email: l.crase@latrobe.edu.au

One of the advantages of writing about water policy in the midst of an election is that it is hard for people to accuse you of showing favour to one side of politics over another.   After all, both labor and liberal governments have a long history of failing to implement sound water policy in this country, so neither is in a position to claim the high moral ground.  However, the decision to delay progress on the much-heralded Murray-Darling Basin Plan does provide an opportunity to contemplate how politics and policy interact and to make some comment about what this means for the local region.    

While desperate to avoid a lesson in economics it is important at the outset to understand that there is a crucial distinction between the notions of risk and uncertainty.  Risk is predictable, at least over a sufficient number of events.  For economists it’s like tossing a coin – if you toss it enough times it will land heads half the time and tales the other half.  Risk is actually not difficult to incorporate into decision making – it’s simply a matter of knowing the probability of the outcome and factoring that into the choices at hand.  

In contrast, uncertainty is regarded as completely random.  Uncertainty makes people hold off making any decision.  It is hard to include uncertainty in sensible decision making and most economists would generally advocate limiting the number of times government policies induce uncertainty.  

Uncertainty is used to explain why investment decisions are so volatile just prior to interest rate announcements by the Reserve bank.  This also explains why regular meetings of the RBA Board are so topical.  Cognisant of the problems associated with uncertainty, the Governor of the Reserve Bank recently proclaimed that an impending election would not factor into any RBA announcements on interest rates.
The avoidance of uncertainty was presented as one of the main reasons for resolving the debate over the tax on the mining industry.  In essence, it was argued that the mining industry needed to know what the future taxing arrangements looked like or there would be a calamitous collapse in investment.  At the time of the federal budget I noted that most mining firms had probably already factored the risks associated with the mining tax into their decisions, as it is commonplace for multinational firms to regularly assess the progress of government policy changes in different parts of the world and to include this in estimates of profitability.  The Henry taxation review was also readily available so any mining company who categorised this tax as ‘uncertainty’ was probably asleep at the wheel.  In any case, now that this debate is largely settled I suspect you will hear few complaints from the mining sector.

This apparent keenness to dispense with uncertainty stands in stark contrast to the treatment of irrigators in the last week.  The ‘elephant in the room’ for most irrigators is the Murray-Darling Basin Plan and the new Sustainable Diversion Limits.  These new limits are aimed at reducing the extractions from rivers and aquifers with the intention of sustaining the environmental integrity of the basin, an ambition that is widely supported by many – including me.

The Plan must be released in 2011 to comply with the Commonwealth Water Act.  Regrettably, the Act is very difficult to follow and the officials working for the Murray-Darling Basin Authority have been faced with a tough job for two main reasons.  First, the Act has many ill-defined terms and asks the Murray-Darling Basin Authority to do too much with too little.  Second, the scientific knowledge to deliver the best plan is not on hand, largely because successive governments failed to invest enough in research to understand how complex systems like the Murray-Darling actually work.  Despite these challenges, the Authority was on track to deliver a draft plan in August preceded by some documentation to help people understand the plan.

All this is now on hold.  The rationale on offer to basin communities is that the impending federal election makes release of the draft plan and related documents too problematic.  Apparently continuing uncertainty in this domain has been deemed less severe.  

Notwithstanding the difficulties faced by the Authority and the prospect that the Plan, once released, will create yet another round of debate accompanied by more foolish compromise, investors in the irrigation sector deserve better.  Deferring the Plan adds additional uncertainty.  If it is good enough for investors in financial markets and the mining sector to face risk rather than ongoing uncertainty then the same metric should be applied to those with an inclination to invest in water-using activities.  

Remarkably, relatively little has been made of this issue by either side of politics.  Maybe uncertainty suits politicians some times and not others.