Chapter 4Compliance
Introduction
4.1This chapter outlines the key issues raised by inquiry participants in relation to the bill’s proposed compliance changes (excluding water market compliance reforms which are examined in the following chapter) and summarises suggestions to strengthen these arrangements.
Contextual information
4.2The Inspector-General of Water Compliance (IGWC), the Murray-Darling Basin Authority (MDBA), and the basin states all play a role in monitoring compliance in the basin. Broadly, the IGWC provides independent oversight and monitoring of Commonwealth and basin state compliance with the Basin Plan. Basin states are responsible for monitoring whether individual water users are meeting the obligations of their water licences. The MDBA supports compliance through, for example, its roles in information provision, accreditation, review, and reconciliation.
4.3In the basin, compliance obligations are spread across various mechanisms including SDLs (sustainable diversion limits), Water Resource Plans (WRPs), and SDLAM (SDL adjustment mechanism) projects.
4.4With regard to SDL compliance roles, at the end of each water year, basin states report on their actual and permitted take and their compliance with SDLs. The MDBA receives this water accounting information from basin states and consolidates it into a ‘Register of Take’. This water take information is then provided to the IGWC who uses the information to undertake an annual assessment of SDL compliance.[2] On 30 October 2023, the IGWC released its expectations of the MDBA and the basin states in its SDL Compliance Framework. The Inspector-General stipulated that it expects the MDBA and the basin states to provide analysis of excesses and of those exceedances below the SDL compliance threshold that are close to the SDL compliance threshold that have been ongoing for several years, increasing, unusual or erratic.
4.5Regarding WRP compliance, basin states are responsible for developing and submitting their WRPs to the MDBA for assessment. The MDBA then advises the Federal Water Minister on whether the plans should be accredited. Of the 33WRPs, there are 11 that have yet to be accredited (all within NSW). The IGWC has previously raised concerns regarding the absence of 11 of NSW’s 20 WRPs as this means there is no legal basis upon which it can assess NSW’s compliance with SDLs. Moreover, the Basin Plan’s rules around non-compliance and reasonable excuse claims can only be enforced once a WRP is operational.[6]
4.6With regards to SDLAM projects, compliance responsibilities are split between the IGWC and the MDBA. The IGWC is responsible for monitoring state compliance with project notification obligations while the MDBA conducts an annual assurance review of the progress of SDLAM projects in preparation for its reconciliation process.[7] As mentioned in Chapter 2, the inquiry received calls for improved accountability of SDLAM project implementation via an audit body led by the IGWC or as a regular review similar to that carried out for the Water for the Environment Special Account.
4.7Regarding the Basin Plan more broadly, the MDBA is responsible for evaluating the effectiveness of the Basin Plan against its objectives through its five and ten year reviews and Basin Plan annual reports. It uses these mechanisms to track progress, identify opportunities for improvement, and communicate where basin governments need to refocus their efforts. The MDBA also produces biannual Basin Plan report cards to improve accountability of basin governments.
4.8Every five years, the Productivity Commission (the Commission) undertakes a separate inquiry which assesses the effectiveness of the implementation of the Basin Plan and WRPs (as opposed to the effectiveness of the Basin Plan itself). The most recent Commission review is underway with an interim report released 30 October 2023 and a final report due in December 2023. The Commission’s interim findings are outlined at various points of this report.
4.9In terms of enforcement, until 2021, the MDBA was responsible for enforcing basin states’ compliance with their obligations. Following several reviews, all enforcement responsibilities were transferred from the MDBA to the IGWC. The IGWC is now responsible for enforcing compliance with the Water Act, the Basin Plan and WRPs.
What the bill proposes
4.10The key proposals of the bill aim to improve clarity and accountability in the SDL compliance framework by clarifying the IGWC’s responsibilities, expanding reporting requirements following non-compliance by states, and allowing the IGWC to appoint or establish an independent auditor to audit the MDBA’s calculations when proposing SDL adjustments. In general, submitters supported the revised compliance arrangements.
Reasonable excuse claims
4.11The bill clarifies that the IGWC is the Commonwealth agency responsible for determining compliance with the long-term annual diversion limits for SDL resource units and assessing ‘reasonable excuse’ claims brought forward by the states.[12] The bill also states that, where the Inspector-General is not satisfied that there is a reasonable excuse, the basin state would be non-compliant with the SDL in the relevant SDL resource unit.[13]
4.12The submission from Environmental Justice Australia argued for publicly available guidance on ‘what constitutes a reasonable excuse’ to mitigate potential for ‘abuse and overuse’.
4.13The Biodiversity Council suggested further strengthening SDL compliance, arguing that the IGWC ‘requires clear powers to enable actions to achieve compliance in those river systems which have not met their SDL requirements’ and that ‘there is a need to establish costs to states for non‑compliance’.
Action plans
4.14The bill would also expand reporting requirements for basin states that report non-compliance with SDLs. That is, where a basin state makes a reasonable excuse claim or where non-compliance with SDLs is reported, the state would be required to:
provide the MDBA and the IGWC with an action plan outlining the steps the state will take to reduce the balance of its water take register to zero or less;
ensure the limit is complied with in the future; and
prepare additional annual reporting to explain to the MDBA and the IGWC its progress in implementing its action plan.[16]
4.15The bill would also give the IGWC the discretion to publish guidelines regarding the content of action plans and progress reports and requires basin states to have regard to any published guidelines.[17]
4.16In its submission, the NSW Government argued that consultation with basin states should be maintained during development of the guidelines, and for inclusion of an appeals pathway into an IGWC determination of whether a state has a reasonable excuse for non-compliance with SDLs. It argued that this ‘would reduce the possibility of conflict between the IGWC guidelines and basin states legislative requirements and/or policy positions’.
4.17On 18 October 2023, amendments passed by the lower house captured the first suggestion from the NSW Government. That is, the Inspector-General must consult the basin states, and have regard to any submissions made by the states, in preparing guidelines.
Audits
4.18The bill would allow the Inspector-General to use an independent auditor to audit the calculations of the MDBA when proposing SDL adjustments (this complements the existing power of the MDBA to do so).[19]
4.19On 18 October 2023, amendments were made to the bill which clarified that the audit may be undertaken by either the IGWC or an independent auditor appointed or established by the IGWC.
4.20The ACT Government submitted that the IGWC’s role could be further strengthened through an additional amendment that would require the IGWC to require periodic audits of the MDBA’s SDL calculations rather than allowing these audits to be optional.
4.21Similarly, Environmental Justice Australia supported conferring a duty on the Inspector-General to conduct an audit, rather than a discretion, and, additionally, conferring a duty to publish a copy of the report on the Inspector-General’s website.
Change to method for assessing the contribution of SDLAM projects
4.22Several submitters raised concerns regarding the bill’s proposal to allow the MDBA to unilaterally change the applicable method for making SDL adjustment determinations, where this had previously required agreement from both the MDBA and the Basin Officials Committee (BOC, which comprises senior officials from each basin government).
4.23The NSW Government argued for the existing arrangements to be maintained to allow multijurisdictional scrutiny:
[The bill] would be strengthened by the recognition that the existing BOC decision-making processes ensures multi‑jurisdictional scrutiny of MDBA decision-making tools and recommendations. Retaining BOC decision-making over how any changes to this methodology are incorporated is an important part of joint government processes.
4.24The South Australian Government submitted that, ‘[g]iven the contentiousness in the original methodology applied...[it is] a key risk to remove the requirement to obtain BOC's agreement to a change in method. This is an important safeguard to ensure that best available science is applied’.
4.25The ACT Government raised similar concerns to the SouthAustralianGovernment, suggesting that ‘anticipated public debate’ could be addressed ‘by requiring the selection of an alternative method to be subject to independent scientific peer review and the methodology published on the Authority’s website’.
4.26Lachlan Valley Water argued that the existing processes ‘provide transparency, due diligence, and assurance to stakeholders’, and that ‘[r]emoving these safeguards jeopardizes the credibility of water management in the basin’.
Additional proposals to strengthen compliance arrangements
4.27The inquiry received a range of additional proposals to strengthen compliance arrangements in the basin. These relate to improving SDL accounting, broadening intergovernmental agreement oversight, and greater transparency in the IGWC appointment process.
SDL accounting
4.28Basin state governments and the IGWC offered suggestions to improve equity in current SDL accounting and compliance arrangements.
4.29The SA Government explained that the failure of NSW to have all its WRPs successfully accredited means that the IGWC has no standing to enforce compliance with SDLs in those areas or request an action plan. As such, compliance with the SDLs in 11 of the 20 NSW WRPs cannot be enforced and there is no recourse for exceeding usage limits, which NSW has self-reported as having occurred in some valleys since 2019.
4.30The IGWC further explained that the current settings require that the Register of Take is set to zero upon the accreditation of a WRP. This was established under the expectation that all WRPs would be accredited by the July 2019 deadline. However, as some of NSW’s WRPs are still not finalised in 2023, the IGWC submitted that a legislative change ‘to introduce a mechanism that allows for accounting provided prior to the commencement of WRPs to be maintained in the MDBA’s register of take would address a significant transparency and accountability gap in the SDL legislative framework’.
4.31As an example, the Victorian Government submitted that, in its case, over 700GL of credits from low water use, under SDLs, in 2019-20 were erased in contrast to northern basin catchments, ‘where water use has been well in excess of SDLs for two years in a row, without consequence’.
4.32Indeed, the Greater Shepparton City Council submitted that it is ‘a disgrace’ that NSW has not complied, that this had been allowed to occur, and that other states ‘are disadvantaged by doing the right thing’.
4.33To address this anomaly, the Victorian and South Australian Governments suggested the Basin Plan be amended to require effective SDL compliance from 1 July 2019 as originally agreed, including a Register of Take commencing at that date for all areas. This would ‘hold all jurisdictions to account for over-use even without finalised WRPs (knowing that penalties may apply)’.
4.34The IGWC explained that the proposal had been agreed by the Ministerial Council in 2018 but was yet to be implemented:
We would be proposing that water accounting, SDL accounting, commence from 1 July 2019 for all jurisdictions and that that be the baseline. Now, that's not a particularly controversial position. It was actually agreed by the ministerial council in 2018. It just hasn't been implemented.
Intergovernmental agreements
4.35In its submission to the Productivity Commission’s Five Yearly Basin Plan implementation 2023 inquiry, the IGWC explained that there are legislative gaps which are impeding its oversight role. The IGWC advised that the Murray‑Darling Agreement (between the Australian Government, NSW, Victoria, and SA) is not within its remit, and that only nine of 40 intergovernmental agreements governing the financial arrangements between the Commonwealth and States in relation to Basin Plan deliverables, are within its jurisdiction.
4.36The IGWC’s submission to this committee’s inquiry noted that the bill will be supplemented by new regulations in the Water Regulations 2008, along with new intergovernmental agreements which provides ‘a key opportunity to ensure all relevant intergovernmental agreements come within scope of my monitoring and oversight function’. This suggestion was echoed in the ACTGovernment submission which suggested ‘introducing regulation under the Water Act to prescribe all current and future intergovernmental funding agreements’.
Issues for consideration by the independent review of the Inspector-General
4.37In September 2023, the Minister for the Environment and Water, the HonTanya Plibersek MP, announced that an independent review of the IGWC would be conducted by Mr Peter Harris AO to ensure the IGWC has the relevant powers to carry out its functions. The review is due to report in January 2024.[40] This inquiry received additional broader issues that could be expected to be captured by the independent review.
4.38For example, in its submission to the Productivity Commission inquiry, the IGWC advised that there are some functions that remain with the MDBA which should be transferred to the IGWC, such as SDL accounting. The IGWC also noted that, in some instances, there is a lack of clarity resulting in the risk of duplication of monitoring and oversight activities.
4.39Additionally, the IGWC submission to this inquiry advised that it had ‘identified potential unintended consequences of the reforms relating to my existing oversight functions’ and that DCCEEW had been notified.
4.40Lastly, the South Australian Government suggested improving transparency in the IGWC appointment process via an amendment to the Water Act and/or publishing criteria or guidelines by which future Inspectors-General are selected.
Productivity Commission Interim Report findings
4.41The Productivity Commission’s interim report assessed the effectiveness of the implementation of the Basin Plan and WRPs and found that there are weak accountability arrangements:
...progress to date demonstrates that accountability arrangements under the Basin Plan are often weak or ineffective... Basin governments have failed to deliver the SDLAM as agreed, develop WRPs on time, and prepare long‑term environmental watering plans... roles and responsibilities for Basin Plan implementation across basin governments are complex and can be confusing...
4.42The Productivity Commission noted that implementing the Basin Plan cost‑effectively and on time relies on parties meeting their funding agreement commitments. The Commission highlighted that although the new Basin Plan agreement requires ‘additional assurances and accountabilities’ from basin states in exchange for deadline extensions, the full details of these strengthened accountability arrangements, and their potential effectiveness, were not public. The interim report suggested improving reporting arrangements, including what measured outcomes were achieved and evidence on their cost-effectiveness.
4.43The Commission observed that only some of the intergovernmental agreements relevant to Basin Plan implementation are within the IGWC’s remit and that a good basis for why some had been excluded had not been provided. The Commission recommended extending oversight of intergovernmental funding agreements relevant to Basin Plan implementation and providing a public explanation as to why some agreements might be excluded.
4.44The interim report also called for greater transparency in the activities and decisions of the Basin Officials Committee and for more holistic consideration of some issues. The Commission suggested the MDBA conduct a stocktake of Basin-related monitoring information currently being collected to identify gaps and streamline where there may be duplication or overlap.
Committee view
4.45The inquiry received general support for the bill’s revised compliance arrangements as well as various suggestions to close outstanding gaps in accountability and transparency. The committee supports the recommendations of the Productivity Commission to improve transparency and extend the IGWC’s oversight of intergovernmental agreements where appropriate.
4.46The committee heard concerns that the ongoing absence of NSW’s remaining WRPs is undermining the effectiveness of the compliance regime. The committee is troubled that there is no existing legal basis upon which the IGWC can either assess NSW’s compliance with SDLs in those areas, or enforce non‑compliance and reasonable excuse claims. The SDL accounting arrangement are perversely penalising states that have provided WRPs on time while benefiting those that missed the 2019 deadline. In light of this, the committee agrees with submitters that argued for improved and more equitable SDL accounting arrangements. The committee supports amending the bill to allow for SDL accounting provided prior to the commencement of WRPs to more effectively hold all jurisdictions equally to account.
4.47The committee recommends that the Basin Plan be amended to require effective SDL compliance from 1 July 2019, including allowing for the Register of Take to commence at that date for all areas, to hold all jurisdictions to account for over-use in the absence of accredited Water Resource Plans.
Next chapter
4.48The next chapter explores issues raised by submitters in relation to the water market reform measures.