Murray-Darling Basin plan economics

Lin CraseProfessor Lin Crase
Email: l.crase@latrobe.edu.au

This piece was originally published in the Border Mail 27 July, 2011

When the Guide to the Murray-Darling Basin Plan was released late last year many people in rural and regional communities expressed concern that the outcome would leave them significantly worse off.  In particular, there was a view that returning water to rivers to improve environmental health might benefit some, but that the costs would be unfairly carried by a relatively small group of citizens heavily reliant on irrigation for their livelihood.

Setting aside the debate around the water being purchased from irrigators, rather than compulsorily taken, the reaction from rural communities led the Murray-Darling Basin Authority to commission additional work around the winners and losers from any basin plan.  The latest instalment in this work was released last week in the form of a nine volume report that outlines possible impacts at a community level.

The report is interesting on several fronts.  First, it highlights that there will be differential impacts with small, irrigation-intensive communities more exposed than larger more diverse centres.  Second, the report found that the short term consequences were likely to be more severe than the long term impacts.  Third, it noted that the mechanics by which any basin plan was implemented would influence the extent and distribution of impacts.  For example, gradual implementation would have a milder effect than rapid adjustment and the types of water rights targeted also changed the impacts.

None of these findings are particularly startling.  Moreover, a careful reading of the initial Guide would lead to the same conclusions.  But a particularly worrying feature of this latest document is the way it frames the questions around winners and losers.

The report goes to great lengths to focus primarily on the impacts on businesses within the Murray-Darling Basin.  On the face of it this seems reasonable, but it also runs the risk of resulting in bad policy choices at a national level. 

The bill for implementing the basin plan will be picked up by all Australian taxpayers, not just those who live in the basin.  Thus, if the scope of the analysis is limited only to those within the basin and if there is a net transfer of taxpayers’ dollars into the basin then of course this looks like a good deal.  The bigger the transfer, the better it looks.

It is precisely this type of logic that is being used to prime the voting public for a high cost implementation process instead of using the low cost alternative.  My reading of the report is that it aims to build a case for using infrastructure subsidies to irrigators as the vehicle for acquiring water to meet any new diversion limit. 

I have written about the folly of this many times.  It is not just that this costs taxpayers four to five times more than buying the water directly or that there are some worrying trends emerging around the way some of these subsidies are being distributed.  This approach also makes it harder to account for the water that is supposedly saved, some of which is already spilling to the environment and therefore may not amount to savings at all. 

Of most concern is the fact that loading up irrigators with more infrastructure makes it harder for them to adapt to climate variability.  Given the events of the last few years this seems destined to make both small and large communities within the basin worse off in the long run, even if it does achieve an immediate political end.

(The Jonathan Mann Lecture will be hosted by La Trobe University on Thursday 28th July at 6.00 pm.  The Lecture is in the form of a conversation moderated by Kerry O’Brien.  The panel will include prominent commentators from irrigation, conservation and government groups.  Details of the event are available at https://www.latrobe.edu.au/aw/).   

Watch the live webcast at: http://www.ustream.tv/channel/latrobepublicevents


 

Lin Crase is a professor of applied economics and the executive director of the Albury-Wodonga campus of La Trobe University

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