Chapter 2 - Main Issues

Support for the bill

2.1        The committee heard broad support for a water reform package that involved national leadership in managing the water resources of the Murray-Darling Basin.

2.2        The South Australian government supported 'a national approach to the management of the Murray-Darling Basin (MDB) through an independent, expert-based authority, consistent with the agreement reached between the First Ministers...in February 2007'.[1] Other states, while concerned about various aspects of the proposal, appeared supportive of the broad approach.[2] Victoria was the only state which indicated it would not provide in-principle support for the bill.[3]

2.3        The Wentworth Group of Concerned Scientists, which had supported the National Water Initiative in 2004, suggested that the bill addresses the deficiencies and limitations of that process.[4]

2.4        The Queensland Farmers Federation believed the bill broadly reflects their preferred model of water policy,[5] while the NFF and other producer organisations were positive about both the bill and the process leading up to it:

Mr Arthur— ...The NFF has been involved since early February and we were given undertakings by the federal government that we would be fully engaged in the process. The NFF set up an industry working group. That has been a totally inclusive group. Anybody who wanted to engage in that group has been able to. That has included the state farmer organisations, all the commodity groups of the NFF and all of the major irrigation groups. For example, the New South Wales Irrigators Council, the South Australian Murray Irrigators, the Queensland Irrigators Council, Irrigators Australia Limited, and also all of the major irrigation corporations, such as Murray irrigation and Murrumbidgee Irrigation. We certainly supported the principles announced by the Prime Minister in his speech on the 25th, and we are committed to work with the federal government on the detail. I believe the government’s undertaking to engage us fully in the development of the bill was carried through and the vast majority of the issues we put before the government and the legal drafters in the various iterations of the bill eventually have been brought forward. I will hand over to Robert Poole, who will make a very short statement on how he sees the bill in relation to the IGA.

Mr Poole—As to the constitutional powers that we felt were necessary and we supported as part of the Prime Minister’s statement to enforce the cap and the processes needed to manage the basin as a whole, we think that the bill can achieve those outcomes as a first stage to water reform. We are confident at this stage that most of the issues that the NFF has raised have been addressed and that the bill can achieve some of the major outcomes in terms of enforcing the cap.[6]

2.5        Environmental stakeholder groups indicated their disappointment that there was not greater progress, and in particular that the original referral of powers model had not been successful.  Further, they expressed regret that the Intergovernmental Agreement (the IGA) was neither released nor agreed. Nevertheless, they suggested the bill should proceed.[7]

2.6        Most parties also indicated that crucial matters remaining to be resolved were not contained in the bills but would be a matter for the IGA currently being prepared and discussed (see also below).[8] It was indicated that a draft of this was expected to be released by the Commonwealth to the states in the coming week.[9]

Issues with the bill

2.7        The majority of debate about the bill concerned the allocation of responsibility for compensation if water availability is reduced; and other costs to the states.

Compensation for reductions in water availability

2.8        The bill makes provision for the allocation of responsibility for compensation to water entitlement holders in the event of reductions in water availability (see clauses 74 to 79 of the bill). The Basin Plan will set:

...limits on the amount of water that can be taken from Basin water resources on a sustainable basis – known as long-term average sustainable diversion limits. These limits will be set for Basin water resources as a whole and for individual water resources.[10]

2.9        It is possible that the long-term average sustainable diversion limit for water resources in water resource plan areas will need to be reduced. In these circumstances, water entitlement holders will experience a reduction in their entitlement. In these circumstances, the entitlement holder may receive some compensation for this reduction. Clause 77 sets out the way in which liability for that compensation will be distributed. In simple terms, the distribution of responsibility is as follows:[11]

Reduction	Water access entitlement holder share	State share	Commonwealth share
0 to 3%	All of the reduction	Nil	Nil
3 to 6%	All of the reduction to 3%	1/3 of any reduction from 3 to 6%	2/3 of any reduction from 3 to 6%
More than 6%	All of the reduction to 3%	1/3 of any reduction from 3 to 6%, plus 1/2  of any reduction from 6% and above	2/3 of any reduction from 3 to 6%, plus 1/2  of any reduction from 6% and above

2.10      Some state government representatives objected to these provisions. They argued that this was a change from the agreement under which they had originally supported water policy reform. New South Wales for example argued:

In the earlier Bill to which the Prime Minister sought State agreement, the Commonwealth was to take up all compensation liability for reductions arising from changes in Commonwealth government policy or improved knowledge above the first 3% that is borne by users.

The Commonwealth's new position is unacceptable. Through the new Bill and its Basin Plan, the Commonwealth would have the ability to impose reductions attributable to changes in knowledge and therefore trigger a NSW liability.[12]

2.11      Queensland made a similar point:

Contrary to Queensland’s understanding of the package of measures agreed by first Ministers, there is now a real risk the Commonwealth could require changes to Queensland’s water resource plans through implementing the Commonwealth’s Basin Plan, resulting in a compensation liability for Queensland, without Queensland having agreed to refer its powers or having settled outstanding issues, and now ultimately a matter beyond Queensland’s control.[13]

2.12      The Commonwealth's position was that:

The provisions of the bill have been developed to ensure that the Commonwealth meets its full obligations under the National Water Initiative. Where the long-term average sustainable diversion limit for the water resource plan area is reduced, the basin plan must specify the amount of that reduction for which the Commonwealth is responsible. In line with the National Water Initiative, the Commonwealth will be responsible for all reductions that arise from a change in Commonwealth government policy. Where reductions arise from new knowledge and take effect after 1 January 2015, the Commonwealth will be responsible for two-thirds of the reduction between three and six per cent and half the reductions beyond that. This requirement is completely in line with the National Water Initiative. If all basin states sign up for full referral of powers, as was the original proposal back in February, the Commonwealth will take on the liabilities of states in this regard. This is the position that was agreed in the previous, what I will call, comprehensive Water Bill that was under consideration for about five months, and on which the Commonwealth and three states reached a very large amount of agreement, and which was the Commonwealth’s preferred position.[14]

2.13      Thus, while the bill implements the same compensation arrangements as currently operating under the National Water Initiative (NWI), the Commonwealth is continuing to offer more comprehensive undertakings on responsibility for compensation, if all jurisdictions reach agreement on referral of powers.

Costs to the states

2.14      A related objection from some states was that a previous guarantee – that states would not face any net increase in costs as a result of the new arrangements – appeared to have been weakened under the new arrangements.

2.15      Queensland observed:

Commonwealth officials have advised that it is only once all states have referred their powers, the Commonwealth will assume the compensation liability to be borne by the States under the NWI and ensure that States will not be responsible for any net real increase in costs arising from implementing the later comprehensive Commonwealth Water Act and NPWS.[15]

2.16      This was echoed by South Australia, which was concerned about the implementation costs arising from increased information provision requirements, and potentially increased bureaucratic complexity, owing in part to the existence of two basin organisations at the Commonwealth level having to operate in parallel with already-existing state agencies.[16]

2.17      Mr Anderson of the Victorian Farmers Federation (VFF) also raised this:

We certainly have some concerns now about creating the bureaucracy that is now being created under this bill. We mean, we have got the Murray-Darling Basin Authority; we have still got the Murray-Darling Basin Commission, we have got two ministerial councils, the community consultative council and an officials committee.

Senator Ian Macdonald—The national water commission.

Mr Anderson—Yes. I am just a bit concerned that at the end of the day somebody pays for all that bureaucracy and it might well be irrigators wearing a fair bit of that cost.[17]

2.18      Murrumbidgee Private Irrigators wanted reassurance that increased bureaucratic costs would be borne by governments and not passed on to irrigators.[18]

2.19      The Commonwealth's view was that the commitment to no net increase in state costs remains in place if states refer their powers:

The government made a commitment in February this year that there would be no net increase in real terms in individual basin state costs as a result of the National Plan for Water Security. Some state governments have questioned this commitment. The commitment was made on the basis that all basin states would refer their powers for water management in the Murray-Darling Basin. The government intends to honour this commitment. If all the basin states refer their powers as originally proposed, the government will ensure that the states do not bear any net real increase in costs. These issues will be set out in an intergovernmental agreement, which will be shortly put to the states.[19]

Victoria's position

2.20      Victoria, in contrast to other states, has indicated longstanding concerns with the Commonwealth's proposals for further water policy reform. On 21 February 2007, the Victorian government published a paper outlining its alternative proposal for national water reform, critical of the Commonwealth's approach.

2.21      The Victorian government argued that the Commonwealth plan created complex governance arrangements and increased 'red tape'; lacked clarity with respect to how and where funding would be allocated; failed to provide detail on the role and importance of water markets, and placed at risk the NWI commitment to the expansion of water markets.[20] The Victorian government argued that the Commonwealth's proposal for water management in the MDB, in particular, was 'under-developed and carries significant risks for ongoing water management'.[21]

2.22      The Victorian government indicated it preferred a model involving implementation through an intergovernmental agreement, rather than a referral of constitutional powers.

2.23      During this inquiry Mr Peter Harris, representing the Victorian government, explained the basis for the rejection of a transfer of powers:

Victoria has rejected complete transfer of powers to the Commonwealth over our water sources because we have a very reliable water allocation system. Victoria’s irrigators and environmental groups agreed with the government that the certainty with which we had endowed their entitlements in negotiations over water reform between 2002 and 2004 was to be preferred to an unknown system of Commonwealth control. The Victorian water allocation system is a reflection of Victoria’s agriculture and relatively dense urban concentration within the basin.[22]

2.24      The Victorian government also raised particular concerns with the current bill. These included:

• Clause 35, being a new provision purporting to enable the Commonwealth minister to prosecute individual farmers for acting inconsistently with the Basin Plan – 'This seems to us to be complete overkill'.
• Clause 172, duplicating the objectives of the Murray-Darling Basin Authority and the Murray-Darling Basin Commission.
• Clauses 97 to 100, which are new and purport to allow the Commonwealth minister to unilaterally change trading rules within the Basin – 'Trading rules are crucial to investment decisions. To my knowledge, in no other market in Australia can the federal minister alter the terms of trading in this way'.
• The use of the treaties power of the constitution, of which Victoria remarked 'there are some quite unique definitional approaches in this legislation'.[23]

2.25      Mr Harris further stated that:

As a result of this, we believe that the proposals put in front of the Senate are incomplete, will create a confusion of governance, add additional complexity and red tape and will lead to uncertainty in investment within the basin.[24]

2.26      Commonwealth representatives explained the concern with the Victorian approach:

Senator O’BRIEN—In relation to the approach to the legislation, we heard evidence that the Victorian government had proposed a model whereby they would legislatively enact equivalent state legislation to give effect to arrangements entered into in any intergovernmental agreement. Could you explain why that proposal is not acceptable to the Commonwealth?

Dr Horne—Yes, I think I can explain that for you. Victoria put a proposition forward that said it did not want to be party to arrangements that all the other states and the Commonwealth had agreed, but would agree to do certain things. But in agreeing to do those certain things it said, ‘But we’ll look at it, anyway, and if we don’t agree with it we’ll withdraw the agreement to do those certain things.’ That did not strike us as being a proposition that, firstly, other states would agree to, and certainly the Commonwealth was unable to agree to that sort of proposition.

...

Senator O’BRIEN—In terms of their proposition, you are saying that they put forward a proposal that did not give certainty about what they really intended to do?

Dr Horne—That is right. For example, Victoria proposed that it only agree to three of the 16 mandatory elements of the basin plan.[25]

The importance of the Intergovernmental Agreement (IGA)

2.27      While not directly related to the provisions of the bill, most stakeholders indicated that the yet-to-be-released IGA would be critical to the effectiveness of the water package. The South Australian government representatives commented:

Mr Freeman— ...Like all the other parties, we are relying heavily on an IGA that we cannot see. We understand why those issues cannot be in this bill because of the constitutional powers that the Commonwealth is relying on for the foundation of the bill. However, taken in good faith, we believe a lot of those other issues should be addressed in the yet unforeseen IGA. Perhaps I can defer to my colleague, Mr Ashby.

Mr Ashby—I would add one other point. New South Wales put the case around risk and cost associated with the new schema. We completely agree with the position that they put earlier. It is something that does not come out strongly in our written submission. However, until we see the IGA we are not really sure exactly how this issue will be dealt with. In the prior schema with the comprehensive bill and associated IGA we were much more comfortable with the issues of risks and cost sharing. Now it is a wait and see.[26]

2.28      Mr Poole from Australian Dairy Farmers observed:

Certainly we have not been privy to the IGA and we are keen to have that go forward because obviously the critical next step for the irrigator groups is to have the $10 billion investment into the irrigation system in Australia. One of the key messages from us today is that we want to see that investment money flow. That is critical to the future management of the basin and irrigation broadly in Australia. The critical next step for us in seeing that IGA and making that work.[27]

2.29      Likewise Mr Anderson from the VFF said:

Mr Anderson—It gets down to the intergovernmental agreement. The detail will now be in the intergovernmental agreement. We have not had the opportunity to view that to make sure that irrigators’ rights not just in Victoria but across the whole of the basin are protected under that agreement. That agreement now becomes a very important document. I understand that all of the states must sign up to that agreement to share in the funding, and certainly with respect to the off-farm investment. We will await it with interest just to make sure that irrigators’ rights are protected.

Senator IAN MACDONALD—What you are both saying is that you are hopeful that the IGA, which none of us has seen, will make up for the absence of the referral of the powers?

Mr Anderson—In the original draft of the bill a whole host of areas were not acceptable from the irrigation community’s point of view and certainly Victoria’s. In terms of dictating seasonal allocations at the local/state level, we always had a view that the only powers that needed to be referred were really the control of the cap and adherence to the cap by the states. Those powers needed to be transferred but it really became a basin operation. From a Victorian perspective it is no different from the NFF or the other states. We have always given in-principle support to the basin plan approach.[28]

Compulsory acquisition of water entitlements

2.30      The second reading speech emphasised the government's position that there would not be compulsory acquisition of water entitlements:

Let me reiterate the Commonwealth’s commitment—clearly stated in the bill—that we will not compulsorily acquire water entitlements. Entitlements will only be purchased from willing sellers.[29]

This is reflected in Clause 255 of the bill and was re-iterated in the hearing.[30]

2.31      Murrumbidgee Private Irrigators welcomed the fact that compulsory acquisitions would not take place, reasoning that 'compulsory acquisitions will force the price of water up and provide a climate of uncertainty for investment decisions in regional communities'.[31] The National Farmers' Federation (NFF) and Industry Water Group representative stated:

I would like to point out that the NFF is totally opposed to compulsory acquisition. We stand behind the position of this program and certainly the acquisition proportion of it. The $3 billion acquisition of licence is for willing sellers. As to compulsory acquisition, many of our farmers have fully developed their farms. As to the notion that they wake up tomorrow to hear that they have lost 30 per cent of their entitlements and then forced back into an immature market along with the other five or six government entities that are trialling it at the moment, there is no support from the NFF for compulsory acquisition.[32]

2.32      At the same time, the NFF pointed out that there is an established mechanism under the NWI for addressing necessary reductions in water entitlements. It supported that mechanism, pointing out that 'prior to [the NWI] process and prior to the adjustment of state bills, the ministers could just with the stroke of a pen remove irrigators’ rights totally'.[33]

2.33      Others, while generally seeing compulsory acquisition as a last resort, did not think it should be ruled out. The Australian Floodplain Association, representing dryland farmers and graziers, supported buyback in particular circumstances:

• Buy back of licences should only be for improving stressed rivers and providing environmental flows.
• The AFA supports buy-back including compulsory buy back if necessary.
• There should be a key strategy for buy back.[34]

2.34      Professor Michael Young of the Wentworth Group was of the view that the bill should explicitly allow compulsory acquisition on just terms.[35] Mr Sydes of the EDO suggested that compulsory acquisition should be a last resort:

However, I think to exclude it and to basically tie one hand behind the back in negotiations about voluntary acquisition is an unwise move and it should be there on the table. [36]

2.35      Professor Young pointed out that to some extent the mechanism under clause 77, which allows compensation for reductions in entitlements made under the Basin Plan, was in effect a form of compulsory acquisition in any case.

Under compulsory acquisition arrangements there is special legislation that deals with compulsory acquisition that are different, and that sorts out a whole pile of income taxation arrangements. In the second reading speech, even with section 77, where we are talking about payment for essentially a legislated reduction, which is the same as a compulsory acquisition, the payment is only for actually the reduction in the value.[37]

2.36      The committee notes that ruling out compulsory acquisition is not ruling out acquisition from willing sellers. This is part of the function of the Commonwealth Environmental Water Holder (CEWH), established under the new bill. The functions of this body are performed 'for the purpose of protecting or restoring the environmental assets' of the Murray-Darling Basin and other Commonwealth water holdings.[38] Part of the $3 billion allocated to address over-allocation and overuse of the Basin will be used to buy out 'unviable or inefficient irrigators'.[39]

Queensland's water planning regime

2.37      The Queensland Farmers Federation (QFF) noted the Commonwealth minister's statements indicating there would be recognition of existing water resource plans, and recommended a range of amendments to ensure that the bill reflected this commitment, taking particular account of differences between the way water planning is conducted in Queensland and how it is arranged in other states.

2.38      The QFF proposed a number of amendments. These related mainly to the definition of entitlements under the risk assignment provisions of the bill (clauses 74, and 77-83).[40] The QFF also proposed an amendment to the bill to implement suitable transitional arrangements prior to the start of the risk assignment provisions in the NWI:

The risk assignment provisions in the National Water Initiative kick in in 2015. One of the concerns we have with this legislation, and on which we have suggested an amendment, is that there is a gap between the date on which our plans in Queensland finalise—in around September 2014—and when the Commonwealth assumes full responsibility and the risk assignment provisions of the NWI click in, which is 1 January 2015. We are trying to get that closed. It is a technical issue that state and federal governments can resolve and we would like to have it resolved.[41]

2.39      Dr Horne of the Department of Environment and Water Resources (DEW) responded to several of these concerns in the following terms:

There is an issue of recognising the different types of water rights in Queensland. Part 2 division 4 of the bill is modelled on the provisions of the National Water Initiative. The National Water Initiative uses the term ‘water access entitlements’ and it provides a very clear definition of what that means. This definition has been adopted in clause 4 of the bill. Under the National Water Initiative states agreed to transition their different types of water rights into water access entitlements by 2006. Thus, for the risk-sharing provisions to cover those people whose water rights are not NWI consistent, all that is required is for states to meet their NWI commitments by the end of existing plans. In Queensland’s case, it is September 2014. They indicated that for NWI purposes they were to do it by 2006 but if they get it done by September 2014 there will not be anybody disadvantaged. Clause 77(8) of the bill recognises that the conversion of earlier water rights into bill access entitlements should be occurring.[42]

Recognition of Indigenous interests in the bill

2.40      The Murray Lower Darling Rivers Indigenous Nations (MLDRIN) expressed concern about the lack of recognition of Indigenous interests in the bill. They indicated that recognition would be consistent with the Memorandum of Understanding between them and the MDBC signed in March 2006.[43]

2.41      The Commonwealth indicated that Indigenous interests are recognised in the bill. In Clause 21(4), it is mandatory for the MDBA and the Minister to take account of 'social, cultural, Indigenous and other public benefit issues' in preparing the Basin Plan. Furthermore, Clause 22 requires the Plan to include a description of the uses of Basin water 'including by Indigenous people'.[44]

Environmental flows and other environmental matters

2.42      The South Australian government and Professor Mike Young suggested amendments to Clauses 20 and/or 22, relating to flow matters. The South Australian government considered that Clause 22 should be amended to require the Basin Plan to include 'an end of River Murray health and maintenance flow target'.[45] Clause 20 lists the goals of the Basin Plan. Professor Young suggested that this list be expanded to include 'a requirement to consider the downstream consequences and ensure the water flows through the entire system'.[46]

2.43      Dr Horne of DEW stated that the bill provides for the setting of flow targets by the Murray-Darling Basin Authority:

The bill does provide for flow targets to be set as part of developing the environmental watering plan, but this is a job really for the proposed independent Murray-Darling Basin Authority...We are of the view that, if it is independent, it does not make too much sense deciding all the important things beforehand and telling the independent authority what it ought to do, and we should leave some of those things to that independent authority to work through with the new information when it becomes available to settle on.[47]

2.44      The Australian Network of Environmental Defenders Office (ANEDO) raised six issues with the bill, summarised below:

• The need for greater independence from the minister for the new Murray Darling Basin Authority (MDBA). ANEDO argued that an independent, expert based Authority was 'essential to the development, implementation and enforcement of the bill' and that the possibility of ministerial intervention might lead to expectations by interest groups that 'powers of ministerial intervention will be utilised, leading to a politicisation of the basin planning process'.[48]
• A lack of coordination between the Basin Plan and investment under the National Plan for Water Security. ANEDO pointed out that priorities for investment in irrigation infrastructure versus entitlement buybacks had been stated as important elements to be included in the Basin Plan in a letter written by the Minister for Environment and Water to the Australian Conservation Foundation (ACF) on 12 June 2007. ANEDO was concerned that recognition of the need for such investment to be informed by the Basin Plan was not evidenced in the bill.[49]
• Improved integration with the operation of the Environmental Protection and Biodiversity Conservation Act 1999 (EPBC Act). ANEDO argued that the bill might be improved if it was amended to ensure that basin planning gave effect to international agreements relevant to basin water resources, and that it was also consistent with 'plans and strategies developed for implementing those commitments under the EPBC Act'.[50]
• Implementation of commitments under the Climate Change Convention. While ANEDO recognised that the United Nations Framework Convention on Climate Change was included in the list of international agreements implemented by the bill, it pointed out that the bill gave no mention on how the Basin Plan could actually give effect to this convention.[51]
• Removal of restrictions on the Commonwealth Environmental Water Holder. ANEDO pointed out that state laws such as the Victorian Water Act 1989 placed limits on the ability of 'non water users' to hold water access entitlements, and that these laws potentially inhibited the Commonwealth Environmental Water Holder (CEWH) from both holding and utilising water entitlements. Clause 110 of the bill provides that state laws will not prevent the CEWH from using water on land that it does not own 'in relation to watering of Ramsar wetlands or water dependent ecosystems that support listed threatened species, communities or migratory species'. However, ANEDO argued that clause 110 needed to be amended, not only to prevent state laws from inhibiting CEWH use of water access rights, but also ensuring there are no such impediments to the CEWH owning or holding such rights.[52]
• Improvement of enforcement provisions. ANEDO raised concerns that under Part 8 of the bill, the ensuing Act would only allow injunctions to be brought about by the 'appropriate enforcement agency for contraventions', namely the Authority, the ACCC or the Minister. ANEDO argued this that this should be broadened to 'provide avenues for interested parties to bring proceedings for breaches of the Act, regulation or rules'. [53]

2.45      In relation to ANEDO's concerns about the need for a more independent authority, the Department explained that there would be more transparency under the bill, and the new arrangements for both the Murray Darling Basin Authority and the Bureau of Meteorology filled two critical, important gaps. DEW argued that together they would:

...provide us with a much more transparent framework where governments, businesses and groups that have concern for the environment will be able to go to a shared source of information that we do not have today to see how things are emerging and unfolding. We can get this very important basin back on to a sustainable footing.[54]

2.46      Further, in relation to ANEDO's concerns regarding the lack of recognition in the bill of investment in irrigation infrastructure, DEW did point out that while the $10 billion funding program under the National Plan for Water Security was not specifically addressed in the bill, the funding was an integral component of the overall package and included support for modernising irrigation throughout Australia, along with addressing over-allocation in the Murray-Darling Basin, reforming water governance in the Murray-Darling Basin and new investments in water information.[55]

2.47      The lack of provision in the bill to give effect to the United Nations Framework Convention on Climate Change was also discussed by the Department at the hearings. DEW explained that the Commonwealth's bill was:

...based in part on the external affairs power, which is a power that enables the Commonwealth to make laws that implement and give effect to international obligations. The particular relevant international obligations are set out in clause 4 of the bill, which provide for a definition of ‘relevant international agreement’..... The senator is correct in saying there is a range of other conventions that also provide for relevant obligations. One of them is the climate change convention, which the senator referred to. I have not brought that convention with me, but there are obligations under that convention to provide for planning in relation to water in order to address climate change issues.... there are certainly provisions in the climate change convention under which states—and Australia is one of them—have undertaken to provide for planning of resources, including water resources, to deal with those issues.[56]

Conclusion

2.48      The committee recognises both the broad support for the bill, the preference of most stakeholders for the original referral of powers model and the concerns raised by parties about various aspects of the bills. It also recognises that the IGA will be critical to the form and success of this water policy initiative. It thanks all parties for the efforts to which they went to examine the bill in the short time available. The committee commends all submissions and suggestions it received to the Commonwealth for careful examination.

Recommendation 1

2.49      The committee recommends that the bill be passed.

 

Senator Alan Eggleston
Chair

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