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Impact of the Murray-Darling Basin Plan on regional Australia

CHAIR (Mr Windsor) —Good morning. I declare open this hearing of the House of Representatives Standing Committee on Regional Australia. I welcome our witnesses via teleconference, Mr Kildea and Professor Williams. Thank you for joining us. Present here are four members apart from me: Patrick Secker, Michael McCormack, Sid Sidebottom and Sussan Ley. There are some formalities to go through, but they will not take a moment. Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the respective houses. These proceedings are being broadcast and televised on the internet.

We have received a submission from you, and we thank you for that. Is there any additional material that you would like to give us? If so, we are more than happy to receive it. What we would like you to do now, if possible, is to make some brief introductory remarks and then we will proceed to questions.

Prof. Williams —Thank you very much. Thanks in particular for the opportunity to make a submission and to appear this morning. I will make a few comments, followed by my colleague Paul Kildea. Our submission goes to a narrow but important point: what the law permits regarding the preparation of the Basin Plan. I should say that our comments are as public lawyers. We are not water lawyers and, therefore, we are not across the full spectrum of water law issues that arise in this context. I should also say that our submission has now been peer reviewed and published in the Public Law Review, which is one of Australia’s leading journals dealing with these types of matters.

The comments I want to make in focusing particularly on the legal issues are, firstly, in relation to the Water Act. The key provision, of course, in the preparation of the Basin Plan is section 21 of the act. Subsection (1) says, in part:

The Basin Plan … must be prepared so as to provide for giving effect to relevant international agreements …

Subsection (2) says preparation of the Basin Plan must give effect to conservation, sustainable use and the like. Subsection (3) talks about the wise use of water resources, the Ramsar convention and the like. Those three subsections form the core starting point for the preparation of the Basin Plan in focusing on the implementation of the international agreements.

Where I think some debate has emerged is with respect to socioeconomic and other matters. They are first explicitly referred to in subsection (4) of section 21, and it is important to state that the provisions in subsection (4) are said to be subject to the earlier provisions. That means that the matters referred to there, such as social, cultural and other matters, can be taken into account but only such that they are subject to the overriding objective of implementing the international agreements. I also note that section 86A, which relates to critical human water needs, allows social and economic factors to be taken into account—but, again, so as not to limit that primary goal of implementing the international conventions.

The reason that the Commonwealth has gone this way is that, in the absence of a referral of power from the states wide enough to cover the full preparation of the Basin Plan, the Commonwealth has had to rely upon its external affairs power. Its other powers—corporations, interstate trade and commerce and the like—are not broad enough to cover the full preparation and implementation of the plan. In looking at the external affairs power, the Commonwealth has had to find a relevant treaty. The only treaties that we can locate that seem to deal with this matter are the international environmental treaties dealing with conservation, biodiversity and the like. They are what have had to be relied upon to bring this about. The short answer for a constitutional lawyer is that, if the Commonwealth did not rely upon those treaties, it would not have been able to achieve the plan that it has; and, if it departs from those treaties by not giving them precedence, then it would no longer be compliant with the Constitution and would risk a constitutional challenge.

What that means in terms of the preparation of the plan overall is, firstly, the international environmental conventions must be complied with. If that does not occur, then a legal problem emerges and the whole plan may well be invalid. Secondly, in implementing those conventions, some economic and other factors can be taken into account. On this we would agree with the AGS advice, particularly in stating that those international environmental conventions leave some room to take into account the economic and other factors. However, we would also note that the AGS advice is correct in saying:

… Conventions establish a framework in which environmental objectives have primacy but the implementation of environmental objectives allows consideration of social and economic factors.

That does give some room, as part of the conventions, to take into account economic and other factors. Thirdly, once the international conventions have been complied with—once that threshold has been crossed—the plan can be prepared with complete liberty to take into account economic, social and other factors. That is the hierarchy, if you like, that the law provides. It is also the hierarchy that is required by the Constitution, unless a referral or other means is found to get around that. On that note, I will hand over to Paul Kildea for a few further brief comments.

Mr Kildea —I just wanted to add a few words about the context in which the Water Act was created because I think it helps to explain how we have got to a point where the development of the Basin Plan is tied up in debates about constitutional power. In January 2007 Prime Minister John Howard announced his National Plan for Water Security, which encompassed a range of proposals, including the creation of a single Commonwealth agency to manage the basin and the development of a new strategic plan to impose a revised cap on water diversions. Prime Minister Howard said that the implementation of his plan would require the cooperation of the states and that he would go about seeking a referral of powers to manage the basin in the national interest.

He went about doing that and in early 2007 it was New South Wales, South Australia and Queensland who agreed to such a referral, but by midyear it was apparent that Victoria was not going to come on board. The Commonwealth then decided that it had no choice but to abandon the cooperative approach and go it alone. It passed the Water Act in reliance on a smorgasbord of its own powers, including those relating to interstate trade and commerce, corporations and external affairs. Of course, these powers are extensive, but they fell short of what the Howard government considered necessary to implement an ideal scheme for the Murray-Darling Basin. It was therefore apparent from very early on that the Commonwealth’s limited legislative capacity was going to have an effect on the design of the Water Act and the effects of this limited capacity are now apparent in relation to the design of the Basin Plan.

In 2008 the basin states did make a limited referral of powers to permit the Commonwealth to amend the Water Act, but this referral did not alter the key provisions regarding the making of the Basin Plan, to which George has referred—that is, the requirement that the plan must give effect to relevant international conventions in line with the valid exercise by the Commonwealth of the external affairs power. It is this element of the act that effectively dictates that the Basin Plan must give primacy to environmental factors over social and economic factors. If the Commonwealth wished to create a basin plan that gave equal weight to each of these three factors, in our view it could not rely on its own legislative powers. Instead the Commonwealth would have to revisit a cooperative approach with the states, perhaps by way of seeking a new referral or by entering into a cooperative legislative scheme.

CHAIR —Thank you, Gentlemen.

Ms LEY —Just picking up on your last remarks, Paul, you made the clear point that in your view the international conventions have primacy in this, but what could be done in a cooperative sense that avoided those international conventions but achieved broadly the same effect? Is there some alternative pathway? It is a bit theoretical because we already have this enacted, but I am interested in your views.

Mr Kildea —I think there are two possible approaches. One is that the Commonwealth could request a referral of powers from the states. As to what would be included in the referral, that would be a matter of detail that would have to be worked out. Basically the Commonwealth would be seeking a referral of powers that would permit it to give equal weight to the environmental, social and economic factors in the plan. We have seen this done in the past. It would probably proceed by way of the Commonwealth and the states, through COAG, negotiating an intergovernmental agreement of some sort and then, having reached agreement on matters of detail, the states would go away and pass referral acts in each of their own jurisdictions.

The second possible approach would be to enter into a separate kind of cooperative legislative scheme. Again, the Commonwealth and the states might form an intergovernmental agreement on the matter. The states would then go away and legislate separately on their own using their own plenary power with respect to matters that would otherwise be included in the plan. Each of the jurisdictions could provide for their own balance between the environmental, social and economic factors without concern for the extent of their own legislative powers. The main difference with the second approach as compared to the first approach is that going with the cooperative legislative scheme would inevitably dilute some of the control that the Commonwealth currently has over the shape of the Basin Plan through the Murray-Darling Basin Authority.

Prof. Williams —If either of those paths were followed, you could put completely to one side the international conventions. You just would not need them anymore. They take primacy in this process because the Commonwealth, in the absence of those types of arrangements, has had to go it alone. This is often the case when the Commonwealth goes it alone. It is subject to whatever head of power it can rely upon and the strictures of that. I agree with what Paul has said—the difficulty here is that this has already been tried and the Water Act is a product of a failure to agree on a cooperative scheme in the past. To go down that path you would have to hope that agreement could be reached when it proved impossible some years prior.

Ms LEY —The circumstances under which it was not possible may no longer exist—in terms of the states’ unwillingness. With the passage of time and the states’ view that this is really quite complicated and messy, they may be prepared, perhaps, to look at it differently. Do you have a view on that?

Prof. Williams —That is possible. It is an avenue that could be considered. I would say in the interim that the states have become a bit less likely in general to make referrals, and a view has arisen that referrals are not usually the best way to go and perhaps already too much power has been referred to the Commonwealth in other areas. That is an additional hurdle but, as you say, things have changed. Maybe there are new reasons that were not considered originally.

Mr SIDEBOTTOM —Do you think the socioeconomic and environmental considerations are mutually exclusive or do you think the Water Act gives us scope for a balanced outcome to be found? I know that is an interpretation, but I would be interested in your views.

Prof. Williams —I think they are not mutually exclusive. On this point I think the government’s advice from the Australian Government Solicitor is spot on in identifying ways that concepts like sustainability require both a measure of environmental protection and recognition of the uses of water and other environmental assets. So they do go together. Nonetheless, one of the problems in the way the conventions are drafted—as that advice recognises—is that they do give those environmental objectives a primacy—to use the word of the advice—that means that even though they are not mutually exclusive there is a level of priority built into those. That is understandable. These are international environmental conventions going to a particular point. They do not exclude those factors you were talking about so they are not exclusive of them but they do suggest a primacy and hierarchy that must be complied with as a matter of law when it comes to complying with those conventions.

Mr SECKER —We have had many submissions demanding a change to the Water Act. Is there a way to change the Water Act which could retain its constitutional power that gives equal primacy to the trivial bottom line of economic, social and environment?

Prof. Williams —No, I do not believe that can be done consistent with the Commonwealth unilaterally enacting this legislation—that is, in the absence of a cooperative scheme of some kind. That is because the High Court has said in the past that if you do use the external affairs power, which appears to be the only power available for the Commonwealth to do this comprehensively, then you must faithfully implement the treaties upon which you are relying. In other words, you cannot manipulate those treaties to change the priority within the treaties; you cannot take into account additional factors with equal weight to those treaties and still rely upon them. In fact, a failure to faithfully implement the treaties has in the past led to federal legislation being struck down; for example, in the Industrial Relations Act case the High Court struck down a key component of legislation because it simply did not rely closely enough on the treaty. So you depart from those at your peril. And in this case the legislation has been drafted with a very keen eye to that concern. That is why it requires, as a first priority, the implementation of those conventions because the drafters well knew that if they did not do that they were risking a challenge in the High Court. Of course, this is an area where you would anticipate challenges. So many people will be affected by any plan. There will be economic and other interests that will suggest to people that if they can bring down the plan there may well be a good reason to litigate. That means you need an ironclad means of implementation. If you leave open a risk you will end up in the High Court, the plan could be subject to one to two years of litigation and uncertainty, and even the uncertainty and delay is something that could have a major impact upon the plan’s effectiveness.

Mr SECKER —Thank you. Who has constitutional ownership of the Murray River where it is the border between New South Wales and Victoria?

Prof. Williams —It is a little unclear. I think the question is: who has constitutional responsibility over that and other areas? The original answer was that the states were expected to have responsibility for these matters. The Commonwealth was not seen as having the oversight that it has now asserted through the Water Act, but what has changed in the interim is that the interpretation of federal power by the High Court has been broad enough to give the Commonwealth scope to pass laws in areas where the framers did not expect or intend. But even though the Commonwealth has those broad powers—and this is something that Paul and I have explored at length in the context of water in a Sydney Law Review article—it is nonetheless the case that those powers are not so extensive that they can do everything. The Constitution still operates as a straight jacket in saying that you have got power but you must do it in a particular way.

Mr SECKER —Sorry—I have probably given you the wrong question because I am not talking about the Commonwealth; I am talking about between Victoria and New South Wales where the river is the border. Who has the constitutional control over it? I have been told—and it could be quite wrong—that New South Wales actually has the constitutional power over the Murray where it is the border between Victoria and New South Wales.

Prof. Williams —The normal constitutional principle is that each state has full power over what occurs within its borders and not power outside of its borders, and if there is a conflict then the state legislating within its borders you would expect to win. So NSW authority ends at its border in any of those conflicts. The problem with a river system is that that sort of analysis does not work very well given the nature of the river crossing those borders, and hence my own view as to why there is a legitimate reason for federal regulation in this area.

Mr SECKER —Could a Murray-Darling Basin plan occur in the rest of the basin with the previous agreement between the Commonwealth, New South Wales, ACT and Queensland and not have Victoria sign up, as was the problem in 2007? So could that still go on in the other parts of the basin?

Mr Kildea —It would be theoretically possible for there to be a basin plan with one basin state not participating in it. Given the fugitive nature of water it would probably be a suboptimal approach. The intention of the Water Act in 2007 was to move some of these questions about the management of water to a sole overriding authority across all jurisdictions to minimise the effect that local interests and concerns would have over the overall management of the basin. So, moving to the kind of arrangement where one state, perhaps Victoria, was not part of the plan, while theoretically possible, would militate against those original objectives.

Prof. Williams —That is right, but it would just be unworkable because you would end up with a different set of rules for Victoria as opposed to other states, and that would be of particular concern, I imagine, to South Australia finding itself at the end of the flow. That would potentially undermine water trading because of those different rules, and could also lead, I suspect, to enormous resentment between communities where you would find different standards imposed, depending on which side of the border people were on. My own suspicion is that that would undermine the capacity to do it. It is either ‘all in’ or the Commonwealth going it alone, as you have got. In this area the Constitution is really quite unhelpful in not providing sufficient power for the Commonwealth to do what ought to be required.

Mr SECKER —In the Constitution they talk about reasonable use of water. How much of a fight would you have in the High Court, for example, over what that term actually means?

Mr Kildea —Yes, you are quite right to point out that in section 100 it talks about a limitation on Commonwealth power when it affects the states’ reasonable use of water for irrigation and conservation. One matter to note about section 100 is that the meaning is unclear—it has not been litigated very much in the High Court. But under current interpretations, it is only a limitation on Commonwealth laws and regulations relating to trade and commerce.  When looking at the legislation as regards the basin plan, the law or regulation is with respect to external affairs, and so the limitation of section 100 under current interpretation would not come into account.

Mr ZAPPIA —In South Australia there has been an ongoing debate about who owns water once it falls from the sky; is it the landowner, the state government or the federal government? Has there been any clarity on that question and can you provide some advice to me on it?

Prof. Williams —There are two ways of answering it. One is that ownership is something that is subject to legislation, so water trading and the like obviously have an effect in terms of creating and modifying ownership rights. It can be a measure of statute law, and that is the most likely and best answer. The High Court has looked at this recently in cases that have looked at the rights of irrigators in terms of the acquisition of property and whether there is property involved in the use of water, particularly groundwater licenses. The High Court found that there was not property involved, that water is like sunlight or other naturally occurring things that are not amenable to property in the way that the law might normally regard property. That would suggest that, when we are talking about things like water falling from the sky, it does not give rise to natural property rights on behalf of landowners, who own the land upon which the water falls, but is something that exists as property in terms of its being regulated by statute and, therefore, very much within the power of parliament to regulate and change those property rights as they wish, without the likelihood of significant compensation having to be paid.

Mr ZAPPIA —When you say parliament, are you referring to state parliaments or federal parliaments?

Prof. Williams —It could be either. Of course, in this case, we are talking about the federal parliament, but the High Court cases were dealing with state parliaments in the context of aquifer licences and the like. This is an issue that is subject to power at both the federal and the state level. If there is a conflict, the federal law will win under section 109 of the Constitution and take precedence. But, like many aspects of the rural sector, you would expect overlapping federal and state laws.

Mr ZAPPIA —Thank you.

Mr SECKER —But doesn’t the Commonwealth have to pay compensation whereas the states do not?

Prof. Williams —The Commonwealth certainly is subject under section 51(xxxi) of the Constitution to having to pay compensation where there is an acquisition of property, and that must be on just terms. So, if the Commonwealth takes land, it must properly compensate for that. The states do not have that limitation. In my view, that is a real problem at the state level. They can take property without giving any form of compensation. In fact, often what the Commonwealth has done in the past is have the states do the acquiring in order to avoid compensation being paid. I know that is a real and genuine concern of people on the land around the country. Indeed I should say that I have given the New South Wales Farmers Federation assistance with regard to this matter because it is a problem.

At the federal level, a related problem is that, even though that guarantee is there, you have to have property in the first place. Because water does not, it seems, amount to property, no compensation need be paid; it is simply a discretionary factor in this case. This comes down to a series of High Court matters, often of an arcane nature, as to exactly what is property and what is not and, therefore, what is compensatable and what is not.

CHAIR —As there are no further questions, thank you, gentlemen, we do appreciate your taking the time. Your submission is excellent and your evidence has given us some clarity in relation to a number of issues that have been hanging over the committee as we have deliberated around the issues of the basin. If there is any further information you would like to give us, it would be very much appreciated.

Prof. Williams —Thank you.

Mr Kildea —Thank you.

[9.59 am]