Dr STONE (Parliamentary Secretary to the Minister for the Environment and Heritage) (4:39 PM) —Some argue that Australia has a somewhat simple set of water management issues when compared with countries that have rivers or catchments that cross international borders. In Australia, however, we have the problems created by the folly of the Federation decision which left jurisdictional responsibility for water management to the states and territories despite river basins and catchments stretching well beyond state borders.

So news headlines like those of today, 24 May 2004, are becoming very familiar. In the Financial Review an article is headed, `NSW thirsts for Qld catchment water.' New South Wales minister for natural resources Craig Knowles has informed Queensland, in response to their water management proposal, that:

The battle is on two fronts: for the environment and for farmer water access. Some Queensland cotton growers have plundered the drought-breaking overland flows, storing them for irrigation in the coming years in giant storage areas that they call in that part of the world `ring tanks'. Cubby Station, for example, has built the largest dam in Australia to divert a volume about equal to Sydney Harbour. It is also, ironically, that volume—500 gigalitres—which is roughly equivalent to the entire Commonwealth and state commitment to additional flows to the Murray River. The Queensland government border water plan proposal is that those down basin who used to share the flow 50-50 should now be satisfied with 10 per cent.

The need to address the overallocation of water is now at a critical stage. World recognised wetlands are at risk, ecosystems are being left in drought despite drought-breaking floods upstream and rural communities dependent on a fair share of the water are left waiting desperately for resolution that only interstate agreements will deliver. In an attempt to provide national leadership the Commonwealth has brokered in the COAG a draft National Water Initiative. This seeks to introduce a set of principles which will guide more efficient and sustainable water use in the future.

At the same time, a second intergovernmental agreement between the Commonwealth and Murray-Darling Basin states and territories is being prepared. It sets out arrangements for investing $500 million over five years to address water overallocation and the need for sustainable environmental flows in the Murray River system. The Murray-Darling Basin Council has also committed 500 gigalitres of water to the Murray River, water which is to be found over the next five years. I repeat: this volume is comparable to that which Cubby Station has recently harvested for its future cotton growing use.

The Commonwealth, New South Wales and Victorian governments have also agreed that the Snowy joint government enterprise will recover an extra 70 gigalitres for the Murray River and 212 gigalitres for the Snowy River. There is an additional $375 million on the table to find this water, which was originally expected to come from system savings. So there is on the table right now a series of intergovernmental commitments that requires the finding of 782 gigalitres of water from what is currently available to Victorian and New South Wales irrigators and stock and domestic users or lost through water storage and delivery systems that are mismanaged or that seep, leak or evaporate.

It is acknowledged by a number of scientific commentators that it is not just extra volume that will recover the species and ecosystems which are now in drought or waterlogged, or salinised through land use practice, water use or isolation from the natural river flooding regime. We have to manage the system better and we are starting to do that. The better management of water, not just volume, is required. This is an extraordinary time in Australian history. Rural communities and their regions in the Murray-Darling Basin will either thrive or decline depending on whether the states embrace the National Water Initiative and the outcomes of the Living Murray driven search for better environmental flows.

The worst drought since European settlement has demonstrated the dependency on water of not only ecosystems but also private wealth generation and the health of individuals and the future of agriculture based economies. The right outcome from this environmental water clawback could sustain the water quality and environment at the same time as it improves the local economies. It would do this by stimulating improved water use efficiency. The wrong outcomes based on poor or inadequate science or inadequate consultation, or state politics in which states see advantage in transferring wealth from regions to city constituencies, or take advantage of the current debt pressures in drought impoverished communities, will see the further pulling apart of life chances for rural and metropolitan Australians. Poor farmers cannot invest in environmentally sustainable practices, nor can they always simply sell up and go. You need economically viable rural communities, ones which have sufficient return on their capital, to reinvest back into natural resources in the landscape—which in turn provide environmental services for us all.

As I have said, the states are expected to find the additional environmental flows in a way that is consistent with the principles or framework proposed in the draft National Water Initiative. So how are they doing? The New South Wales government has embarked on what promises to be a turbulent and lengthy process, trying to break down the interregional barriers to water trading regulated by their state water trusts and corporations. The New South Wales government has reached for the National Competition Policy to see if the current regime complies. Other works going on within regions are identifying water delivery systems and on-farm water savings—in places with the cooperation of major private sector sponsorship.

Meanwhile, in contrast to the slow but steady pace of New South Wales, in Victoria the Bracks government is hurtling forward with an exercise called `Securing our water future'. A green paper was launched several months ago by the Bracks government, with a white paper to replace it with policy in June 2004. While not spelt out in the green paper, an initiative has been promoted in discussions between those in regional Victoria who owe their positions to state ministerial appointments, the chairmen of the water services committees of Goulburn-Murray Water and a select group in the VFF. This proposal takes 20 per cent of the Victorian pool of Goulburn and Murray system water, currently allocated on a one-for-one basis for each megalitre of the water right owned by irrigators. This water, known as the `sales pool', is available only when there is water in the storages above the water right entitlements.

The vast majority of farms in the Murray and Goulburn system have been developed in the expectation of this annual sales pool delivery. The recent drought has shown the terrible consequences of significantly reduced water access for agriculture. It has seen farm costs soar, as a shortage of home-grown feed was replaced by fodder having to be bought at hugely inflated prices. I do not need to describe here the impacts of drought, because all the people on the coalition side understand the impacts only too well.

The loss or reduction of water entitlement through clawing back the sales pool, or sales down river, also raises the issue of system viability. The Goulburn-Murray Water Authority is wondering out loud if a levy of $400 on each megalitre sold is the answer to funding the buy-out of remaining irrigators on a stranded asset or to pipe a supply to those remaining. It has yet to develop a strategy to relieve the problem of fewer water users in a huge, old and run-down system, designed to be paid for by many, many more. Despite the move to full cost recovery some years ago, each year the Goulburn-Murray water authority goes deeper into debt. Price hikes to irrigators at 20 per cent and 30 per cent each year over the last few years are simply taking the water beyond the ability of current users to pay—users who have been assessed as some of the lowest cost, highest value producers, particularly in dairy, in Australia.

It is within this complex, multifaceted context that the Victorian government has proposed to a selected few that they claw back 20 per cent of the Goulburn and Murray system irrigators' access to the sales pool in exchange for $30 million state investment in rehabilitating and making safe their own major state owned irrigation storages. It seems to me that a deal which claws back 20 per cent of your water in return for the owner of the asset agreeing to put a little—too little—towards repairing the asset is not a great deal. The irrigation infrastructure was built generations ago and full cost recovery has been levied against irrigators for a very long time, and still the users cannot generate sufficient funds to replace the assets. One wonders why the Victorian government has concentrated on those in the Murray and Goulburn system for this claw-back of water and why the same does not apply to water users in Mildura or beyond Swan Hill. Why is there this concentrated focus on Goulburn and Murray system irrigators?

Another concerning feature of the Victorian green paper is the proposal to allow the stock and domestic water component of a landowner's entitlement to also be traded off the property. At current prices, this water would be worth around $10,000 per farmer on the market. We all know that when the banks are pressuring you to liquidate anything you can, this stock and domestic water would quickly find its way onto the market. This would help the state owned water authority to further justify the shutdown of the stranded assets in the system, with those remaining forced to pay more or face a buy-out. The draft National Water Initiative says:

The Victorian government has also failed to give assurances that it will not enter the market for the water that is put up for sale if the sales pool is turned into a tradeable asset. That would simply mean that those forced by the banks to sell would be delivering even more water into the state's hands—which would have the largest chequebook to pay. That is not a solution for the long-term sustainability of irrigation in northern Victoria—irrigation which has made the state rich and which gives future generations a life worth living. (Time expired)