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June 03, 2004
John Quiggin has an op-ed in the Australian Financial Review on water (subscription only) in the Murray-Darling Basin. He rightly identifies the core problem and solution : the over-allocation of water licences across the basin (but particularly in NSW) and the need to claw these back. John says:
"We have made commitments, which in total have exceeded the amount [of water] available.These commitments include water for existing irrigators, promise of access to new entrants, urban water supply for Adelaide and elsewhere and the preservation of sufficient flow to sustain the natural environment. As with all unbalanced budgets, the only resolution is for some users to take less. The problem is to determine who should go without and who, if anyone, should bear the cost of compensating the losers."
Spot on. The solution adopted by the state and federal governments is a market one. Convert water entitlements (licences) into property rights and establish a water market so that irrigators could trade water.
Alas, the state governments meerily continued on their incompetent and corrupt ways. They neglected to buy the water licences that they had issues but irrigators had not used (sleepers and dozers) before setting up the water market. The federal government was looking elsewhere.
John points out the problem:
"Thanks to the property-rights approach these "sleeper" rights have been converted into tradeable entitlements for which the holders, naturally enough, want comenpsation at full market value. As a result, the simplest and neatest solution to the problem of overallocation, that of buying out enough users to bring supply and demand into balance, is considerably more expensive than it mght have been. The conflict over who should bear the costs has therefore become sharper."
Rightly said.
It's a mess. The National Water Initiative talks in terms of "firm pathways and open processes for returning overallocated surface and groundwater systems to environmentally sustainable levels." But it says little about this is to be done.
Quiggin offers a way. He says:
"One way to resolve some of the conflicts ...might be to make payments to irrigators now in return for relinquishment of water rights in the future. This could be a step towards a fully-fledged futures market in water entitlements...As part of the reform proccess, existing licences with fixed terms of 10 and 15 years are to be converted to perpetual entitlements It would make sense to see if some licence holders were willing to forgo this conversions in return for an upfront payment."
It's a good idea. It would be a step to help bring supply and demand into balance.
However, it does not return water to the Murray-Darling rivers to ensure ecosystem health. That is not happening. It should be since the state of the River Murray's wetlands is very poor.
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Why wouldn't you impose a flat rate levy on water, similar to a Medicare levy, to be banked for the purchase of environmental flows,salinity reduction,etc? The existing water rights owners can carry on with business as usual, albeit with a higher cost structure.A levy could be phased in with complete afore knowledge of the price hikes, similar to thje reverse case with car tarriff reductions.