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Water (Consequential Amendments) Bill 2007 Water Bill 2007

CHAIR —Welcome. Because this inquiry has been called at short notice and a lot of people wanted to appear, we will get you to make an opening statement of three or four minutes and then we will have a question and answer session. We will begin with Professor Cullen.

Prof. Cullen —As you pointed out, the Wentworth Group made a presentation in this morning’s session in the industry framework. I am now able to table the statement largely presented there, but which includes elements for the environment. The statement has some of the points that were made this morning and some that I am making now. I fear that the inflows into the Murray-Darling have dropped by about 40 per cent over what has been the reasonably long-term average. When you look at the climatic record, the period 1950 to 1990 has been an unusually wet period and we are now back somewhat drier than the period 1900 to 1950. A lot of our understandings of the Murray-Darling, the agriculture and the environment it can support have been made during a reasonably unusual wet period. I believe we need to adjust to this water scarcity and learn to live without a number of wet years. It is probably more serious in that we have now run all the storages to empty and it is quite possible that some of those storages will not refill without a run of quite unusually wet years. They will not fill in average years. We are not dealing with a stable system. We are dealing with one that has quite a lot less water and which might be continuing to decline.

When we look at the Perth story, the weather patterns have slipped down to the south and in Perth it seems to be getting drier again. There has been a series of step changes. I hope that is not what we are seeing on the east coast, but I fear it might well be. We deal with two weather patterns in the Murray-Darling Basin. We have the westerlies that impact Perth, Adelaide and Melbourne. They appear to have slipped south and we appear to be getting much less rain because of it. In the northern part of the basin we are dealing with the cyclonic systems, and we have seen one that has just hit the coast, which produced a lot of water into Sydney. It brought the Sydney storages back from 30 per cent to 50 per cent. We just do not know how frequent those events, with the climate change predictions, are going to be. Traditionally in Sydney they have been about every eight or so years. If they go out, then we have more troubles in the north. The cyclonic activity that hit the coast did not hit the northern part of the Murray-Darling Basin so we did not get a pulse of water going through that. We do appear to be dealing with a different climate.

There are two elements to this. We have to accelerate the implementation of the National Water Initiative, because that still gives us the best possible framework for dealing with uncertainty and declining water. It has been agreed by the Prime Minister and the Premiers. We have to get on and do it perhaps a bit quicker than we have been planning to do it. Secondly, we need to improve the governance of the Murray-Darling Basin. I know that is one of the issues concerning the government. A lowest common denominator governance model might get you by during wet periods, but it is certainly not going to get us through the water scarcity that we are now facing.

We support the bill in principle in trying to put in place and accelerate the National Water Initiative principles. There is a reasonable amount of detail in the bill, and that is good. I strongly support the elements of that. The elements of the National Water Initiative in it include the commitment to identify sustainable levels of extraction and to try to return systems to those within a clear transition period of five years. I remind you that we have been making commitments like that since the 1994 COAG water reforms and we never seem to have done it. Again, this time there is money to do it so maybe we have a better chance.

The bill also recognises the importance of interception activities, plantation forestry, farm dams and groundwater harvesting/floodplain harvesting. It is important that they be built into those water plans. There is strong support for those elements. There are challenges with the sustainable levels of extraction. The rhetoric is fine. The challenge is how do you do it. I would like to see in the bill some reference to the need to use best available science, recognising that the science is probably going to be changing over time as we learn more about that.

I think given the instability of the weather patterns and, as I said, a 40 per cent decline in the inflows into the Murray-Darling Basin, we are not looking at a stable system for sustainable levels of extraction. The objective for river management now is to try to maintain the resilience of our rivers to cope with the climatic shifts that they are experiencing. We are not dealing with trying to stabilise them, we are trying to make sure they keep the capacity to bounce back from the droughts and the floods that they are likely to experience with this climate shift.

Probably the best example is the river red gums. We now know that you will lose river red gums if you do not get a wetting on that flood plain about every 10 years. The Victorian Environmental Assessment Committee came out with a red gum policy last week or the week before that identified some national parks to protect red gums in the lower Murray. But they basically said that ideally they will have a wetting every five years. Somewhere there is a threshold, between five and 10 years, where if you do not wet red gums they will die. Coolabahs will go a bit longer. I think they go to 12 years. The challenge is trying to manage our rivers so we maintain or restore resilience so they have the capacity to cope, and the idea of these thresholds of potential concern. We need to understand what they are. I have given you the red gum ones. There are others that we are trying to explore. That is where the science is going with that question of sustainable levels of extraction. We just need to keep pushing for the best available science.

One of the challenges that you may understand better than I is that there is a commitment to identify sustainable levels of extraction, which is virtually a cap. There needs to be a good connection between the seasonal allocations of irrigation water and that longer term cap. I understand from this bill that the seasonal allocations are still going to be determined by the states. I want to make sure that there is a good connection between the decision making on what are the seasonal allocations so that we in fact do live within the sustainable levels of extraction. Over the last 15 years, had we been making those seasonal allocations with a view to what was a sustainable level, we would not have the river degradation that we have experienced.

As to the mission in the document, there are a lot of good requirements for water information, and I strongly support all of that. But there is no requirement for regular information on the health of the rivers, and yet we are doing all of this to restore river health. I believe the bill would be better if we could include in it a commitment to accelerate and to report regularly on the sustainable rivers audit that the Murray-Darling Basin Commission has been doing. We need to get a routine, regular, systematic measure of river health so we can see whether we are getting on with the task.

Mr Sydes —I will make a very brief opening statement because what we have to submit has some overlap with what is put forward by ACF and the Inland Rivers Network. We are grateful for the opportunity to come along and make a submission today. It is unfortunate that legislation of this significance will be subject to such a compressed timetable of public consultation and so forth. We agree with Minister Turnbull’s statement in his second reading speech about the significance of this legislation. Given the significance of the legislation, it is deserving of a greater period of public consultation and scrutiny.

In my submission, I have broadly endorsed the approach in the present bill of not only developing a basin planning mechanism that has to be consistent with but actually gives effect to Australia’s international agreements. I have tried to outline a few areas where that broad philosophy might be undermined by some of the details in the bill, either by potential compromises to the independence of the basin authority or other mechanisms that might ultimately lead to the basin planning mechanism being undermined. I have concluded the written submission that I have lodged with the committee with a suggestion that public standing provisions be included in the bill. I think something of broad public importance, like the subject matter of the bill, deserves those public standing mechanisms and it would improve accountability generally in the administration of the scheme if those public standing mechanisms and similar enforcement mechanisms were in place.

Ms Hankinson —The Australian Conservation Foundation Inland Rivers Network has been working in tandem on this. Are you happy if Dr Buchan and I both speak on the issues broadly so that we do not repeat ourselves?

CHAIR —Yes. It is only a short introductory comment.

Ms Hankinson —Dr Buchan, would you like to start?

Dr Buchan —I apologise for not attending in person. Most of you would know that the Australian Conservation Foundation and the Inland Rivers Network supported the National Plan for Water Security and the Prime Minister’s vision as he put forward in January this year. We saw that as a once-in-a-generation opportunity to fix up our rivers and wetlands and protect our freshwater biodiversity, to put our irrigation industries on a sustainable footing within a decade, and of course to provide water security for our towns, especially Adelaide. We were really pleased with the vision that was put forward in January. We have been disappointed since then to see the vision of that plan being continually eroded by political interference and pressure from vested interests. Sadly, the bill which is the subject of this conversation will not go anywhere near achieving the objectives of the plan articulated in January. Of course, we understand the position that the Commonwealth is in in relation to the absence of the full referral of powers in the states, but we still think there are a number of gaps, omissions and so on in the bill that could be fixed up in a relatively straightforward manner and take us far closer to achieving the objectives of the national plan as it was articulated in January. That is the subject of our paper.

CHAIR —Would you like to say something, Ms Hankinson?

Ms Hankinson —Yes. One of the key aspects of the bill being successful and the national plan that it gives effect to is having an independent authority. We see that having an independent authority is essential to overcome the politics and parochial interests that have held up water reform to date. Unfortunately, as it currently stands there are a number of areas that would restrict the independence of the authority and its ability to take us forward based on best available science. In particular, the authority can be directed by the Commonwealth minister on the setting of the sustainable diversion limit and the environmental watering plan, which are two critical aspects that will make or break whether we actually move forward in water reform. As well as that, there is a proposal under the intergovernmental agreement to have a ministerial council that also directs the authority and its ability to meet the goals and visions set forth under the national water plan.

On top of that, there are a number of gaps that we see should be filled, particularly given that the plan seeks to not only accelerate the National Water Initiative but give effect to a number of international commitments to wetlands and biodiversity. In particular, we see the great value in having a robust sustainable diversion limit where the bill is amended to include a number of provisos to ensure that the diversion limit is sustainable. For instance, protecting the environment in critical low or medium flow years, taking into account climate change impacts and use of low and medium figures to get us away from misleading long term averages. On top of that there is a need for the Water Bill to cover floodplain harvesting and all forms of extraction. Currently there are no clear explicit requirements to tackle that form of extraction, which is quite significant particularly in the Darling Basin. If that form of extraction cannot be dealt with, then it is going to be difficult to meet aims of tackling overallocation as well as protecting environmental water.

There is also a need to include time lines and milestones for targets that have been put in under an environmental watering plan to add to the robustness of that plan and a need for the clear prioritisation of objects in the bill to ensure that when trade-offs need to be made they can be made to give effect to the National Water Initiative and our international commitments.

Similarly, the environmental water holder needs to be free from inappropriate limitations that would affect its ability to deliver on the bill and the national plan. As Mr Sydes has articulated, there is a clear need to ensure that the public can hold the government and future governments accountable by having open standing provisions, which is quite important given we are talking about $10 billion of taxpayers’ money. Dr Buchan, do you have any other comments?

Dr Buchan —I support a comment made by Professor Cullen that there is a real absence of the requirement for river health reporting, and that is tied into the CSIRO sustainable yield study, which although it has been articulated as a sustainable yield study is not. It is a hydrology study, and there is much more work required to augment the hydrology study in terms of the ecological requirements of the system at a whole-of-system level and also on a much smaller scale as well. That work needs to be done, accelerated and brought into the decision-making framework for water allocations and so on.

In terms of the rollout of the major financial components of the National Plan for Water Security, we are disappointed to see that the financial rollout has been back-ended rather than front-ended, so to speak. Everyone agreed on how important and how urgent reform is required, and the government should put its money where its mouth is and accelerate the rollout of those financial packages in order to drive reform across the basin.

CHAIR —Senator Heffernan tells us that he is in a hurry; he has to catch a plane.

Senator HEFFERNAN —Professor Cullen, I asked some questions this morning of the governments and various agencies in terms of painting a picture of declining rainfall and runoff, and what we do when we get to a stage where we have lost a quarter of the run-off permanently. I have a series of questions along those lines. How do we protect the environment when we have got declining rainfall?

Prof. Cullen —Australian aquatic ecosystems and terrestrial ecosystems are adapted to drought. Therefore, they have the capacity to bounce back from a drought. We term that ecological resilience as the ability to recover. What seems to me important as we go into this uncertainty is to try to understand what are the critical factors that allow those systems to recover and make sure we do not inadvertently lose them. The obvious example is that fish hang on in waterholes. Even when the river has ceased to flow you have still got waterholes and fish can hang on in there and then recolonise. We obviously see this in the Lake Eyre Basin where some of the waterholes hold fish that have been estimated to be 18 years old. They hang on and they can breed. There are a whole lot of other, what we call, refuges by which animals and organisms hang on and then recolonise. That is the first point: understanding what those refuges are and making sure we protect them so the system can bounce back.

The second thing is trying to understand these thresholds. How frequently do we need to get water on the floodplain for the trees, into the wetlands for the wetlands, for the waterbirds and for fish? I am trying to get some of the science now marshalled to let us know what existing knowledge tells us about those various thresholds. We then start to rethink some of the thinking. In the past it has been the view that in a wet period you could harvest as much water as you wanted for irrigation and in a dry period we would fight over it between irrigators and the environment. When you start thinking this way and you look at, say, the red gum story, it may well be that after a run of dry years and you do get some water, what is important is that the high flow gets out onto the floodplain for the environment. Rethinking a bit about when it is reasonable to harvest floodplains and when we should not be doing that seems to me to be part of living with that drying environmental side of it. I think that is where some of the science is taking us, the idea of maintaining the resilience, understanding its thresholds and then letting that feed into the management of our water so that the environment gets its share when it really needs it.

Senator HEFFERNAN —It would be fair to say that there is a need for a system, as Dr Buchan referred to, to measure river health to look at future science?

Prof. Cullen —Yes. Australian water resources 2005, which the National Water Commission released a few weeks ago, tried to see, using existing data, what river health stuff we had. It is only Victoria and Tasmania that really have a regular systematic assessment of river health. In that exercise the National Water Commission developed a framework for assessing river and wetlands health, which was negotiated with all of the states. The National Water Commission at this stage is funding some trialling and rolling out of it in various Queensland ecosystems. We need to be doing something like that. The Murray-Darling Basin has been doing the Sustainable Rivers Audits. I am not sure if it should be annual or every two years, and we could argue a bit about that, but there needs to be a regular assessment of river health so we know how the system is changing with the climate and how it is changing with our management interventions. Given all the stuff in the bill about data and knowledge that the Bureau of Meteorology should be producing, which I strong support as a very significant step forward, I think we should be requiring one of these multiple organisations in this field to be systematically reporting river health using the Sustainable Rivers Audit or an evolution of that.

Senator HEFFERNAN —Would you like to progress on the seasonal allocations within the cap and whether the cap is a set volume or a variable volume?

CHAIR —Just before you do, Professor, we have Ms Averil Bones from WWF on the line. We welcome you to this inquiry.

Ms Bones —Thank you.

CHAIR —We will get you to make an opening statement shortly if you wish to do that.

Ms Bones —Thank you.

Prof. Cullen —This is one of the really tricky bits. From what I have read of the bill, there is an implication that we just need to set a long-term sustainable level of extraction. I am just a bit worried that implies there is a magic figure such that, if we can operate within that, we will be okay. I think the rainfall has certainly declined and it may still be declining as it has in Perth. The sustainable level of extraction may not be a fixed figure, it might be a variable figure, and we are going to have to learn to manage within that. There is still the critical question: once we have a sustainable level of extraction, someone has to make periodic announcements to the irrigation community as to how much the seasonal allocations are. At the moment that is not referred to in the bill. That will be a state responsibility. I see a difficult connect between the limits on diversion, the sustainable level of extraction, which might be varying somewhat, and then the second set of decisions within that for the periodic announcements of seasonal allocations. That is the crunch. If we got those seasonal allocations right we would not have had a problem now. In my view, traditionally we have not got them right, and I am still worried about the disconnect particularly between the multiple players. We have the new Murray-Darling Authority. We have the Murray-Darling Basin Commission and we have each of the state agencies. My understanding is that each of the state agencies will be doing those seasonal allocations. Making sure that is realistically within the sustainable levels is going to be the tricky part, and it is not clear from the bill how that is going to be done.

Senator HEFFERNAN —And having to avoid the political pressure of the market. I have two other questions. Professor Cullen, would you like to paint a picture and give some visualisation of how you think in these declining circumstances of run-off a 2020 irrigation district will work?

Prof. Cullen —It seems to me that we have less water, and it might be 40 per cent or even more, for irrigators and I think that water might be more variable. I have been trying to do some preliminary thinking as to what will irrigation look like under that scenario, because there are substantial funds available for infrastructure investment in this package and it seems to me that it is important that we use that money to let us build the new irrigation systems for this new environment rather than, as a colleague of mine Professor Langford says, concrete in the mistakes of the past.

I think irrigation farms may well become bigger. I think they will have parts of their farm that has reasonably reliable water and in that they will be investing in good water delivery systems, and so the public investment might well be in the spine of the delivery system to the farm and then the farmer will decide what mix he wants to manage his risks between expensive infrastructure and cheap infrastructure. There will be wetter periods when opportunistic crops such as rice and cotton are appropriate things to grow. I do not know how frequently they will be. I am seeing a situation where instead of farmers thinking of themselves as rice farmers or dairy farmers they might start thinking of themselves as irrigation farmers and have a portfolio of crops that they use depending on their assessments of water availability. We are still trying to work on that vision and translate what those irrigation properties might require in terms of state infrastructure. It seems to me that it is important to do that before we rush in and replace the old infrastructure of an irrigation system of the 1950s.

Senator HEFFERNAN —I use Carnarvon as the example there. They use 8,500 megalitres, or eight-and-a-half gigs, basically through root-zone ball irrigation and fertilisation, for bananas. That produces $60 million worth of income from eight-and-a-half gigs. Whereas The Ord Stage I, which was fairly crude, rude and unattractive, produced $65 million worth of income with 40 times the amount of water. The most oft misquoted Peter Cullen extract is your study of the lower Balonne. Could you put on the record what you think would happen. Bear in mind there is a draft ROP out there at present. I think there is 1,500 gigalitres of off-river on-farm storage being built. Can you describe to the committee what would happen to the full capacity of the harvesting that is being built there in the context of the decline in the river systems?

Prof. Cullen —I can, with some difficulty. Let me tell you what I did do. Several years ago I was asked by the Queensland government to look at the lower Balonne. I looked at all the river health data and I looked at the information that we had on wetlands, such as the Narran Lakes, and I could not find any particular evidence of degradation of river health at that time. That is what I had to say, because I could not find any degradation. At that stage there was a lot of irrigation infrastructure that had never been used. I cannot recall the detailed figures, but I think naturally the Narran Lakes at that stage was wetting every three or four years. Had all of that infrastructure been used, it would have wet only every seven or eight years on average given it is a variable system. I believe that would have led to the destruction of the Narran Lakes. I do not think that you would maintain wetland vegetation with that increased frequency of wetting.

What I tried to do in that work was to say that it was the early forerunner of this threshold work that I talked about a bit earlier and say how frequently does the Narran Lakes need to be wet so you still have a Narran Lakes that can support the bird-breeding events. I think we came up with a judgement that if it did not get a wetting of about every three-and-a-half years we thought the vegetation would change. My view is that if all of the irrigation infrastructure that was there was actually employed without the constraints that have now been built into the system, then there would have been a destruction of some of those aquatic assets.

With respect to the resource operation plan that they have been negotiating, which I understand is based on my report, I have not tried to assess what frequency of wetting it will give to those wetlands. Had all of that irrigation diversion activity been employed, I think it would have led to the destruction of the Narran Lakes.

Senator HEFFERNAN —They are actually saying, in quoting you selectively, that the tick-off is there for the ROP, which is now in draft form, which includes that huge 400 gigalitre licensing for Cubbie. But because you have been selectively quoted, it is all right to go ahead and license the full capacity of the system, which is way above the mean to be licensed, valued and legitimised.

Prof. Cullen —To me the critical question is that I do not think any of the more recent science has really changed the finding that I came up with, that it needs a wetting every three-and-a-half years on average. That is the test. You need to run the models and see whether the licensing that they are proposing will give that wetting regime, which gives you a reasonable chance of maintaining that wetland.

Senator HEFFERNAN —Professor Cullen, would it be a reasonable thing to say that, before the draft ROP becomes the ROP, that study should occur?

Prof. Cullen —I believe it needs to be checked against those ecological outcomes.

CHAIR —We will invite Ms Bones to give a short opening statement so that we can continue with you as part of this hearing.

Ms Bones —The WWF supports the further development of this legislation and also the intent of the Prime Minister’s National Plan for Water Security. However, I am really yet to understand why the Commonwealth has introduced this legislation before the intergovernmental agreement has been finalised. We welcome the bill’s attempt to realise Australia’s international commitments to protect wetlands, rivers and species and also the efforts by both the Commonwealth and states to see the implementation of the National Water Initiative. It is hoped that the basin plan will properly implement our international commitments and as well provides buffers to the predicted climate change. However, it really must make a greater effort to specify and deliver water required for maintenance of important environmental sites and it must do this within a highly variable and uncertain environment. I am not sure that the framework has developed to take into account the variability and the changes that we face in the future as yet. We also need to widen our focus not just on important Ramsar sites or living icon sites but to the maintenance of all nationally and regionally important wetlands in order to give us that logical integrity to maintain the robustness of the environment going into climatic difficulties.

I noticed earlier that the South Australian government was calling for a guaranteed end-of-system flow, and certainly that is something that the WWF would support. We ask that such an end-of-system flow would be sufficient to maintain the integrity of the Coorong Ramsar site. I came across some interesting science from the South Australian government in their ecological character description from the Coorong. I think that would be a useful document for the committee to consider because, apart from determining the ecological character of the Coorong site, it also sets out a framework for aligning management responses to benchmarks for condition, and it may be useful for thinking more closely on how exactly we draw the line on sustainable limits. I would like to submit that document for the committee’s reference.

CHAIR —Can you fax it in?

Ms Bones —Yes.

Senator WORTLEY —Can we have that document via email?

Ms Bones —Yes, I can email that. The basin plan must also seek to address existing key threatening processes, which are already recognised by the states and the Commonwealth. In saying that, I would include climate change and invasive species. I think provisions relating to the basin plan should be amended to ensure that site-specific management plans, recovery plans and threat abatement plans for environment matters are incorporated into water-sharing plans prior to approval.

As far as the discussion around compulsory acquisition of water entitlements, I really think that opportunities to retrieve high-security water for environmental assets to maintain their resilience are already limited. I would be cautious about ruling out particular management options, especially relating to structural adjustment of rural industries. It does seem a little bit pre-emptive and based more on fear and politics than good management outcomes to rule compulsory acquisition out altogether. Also in the face of climate change we really are looking at addressing a significant problem. We have overallocation and floodplain harvests, and duplication of ground and surface water accounting that are problems from the past. We need to move quickly to address those problems, because the loss of 40 per cent of the basin’s water resources really does put us in a difficult position. If we have not addressed the problems of the past, we will have a lot less opportunity to put the river system on a sustainable footing and give us some capacity to move successfully into the future. There is a work I came across at the Fenner conference this year and which the CSIRO mentioned. The study was titled Climate change and Australian water resources: first risk assessment and gap analysis. That was put together for the Australian Greenhouse Office and the National Water Commission. I thought perhaps that might be relevant for the committee to consider if we are thinking about the actual climate forecasting that has been going on.

Finally, I am really surprised that the bill does not contain public standing provisions and an opportunity for judicial review. The first time I read it I assumed that it was an unfortunate oversight, but apparently not. I urge the committee to ensure that the advice of the Environmental Defenders Office on this issue is taken into account.

Senator O’BRIEN —As to the comments that you make about 40 per cent or more of the water entitlements being overallocated, how should we understand the adequacy of the $10 billion package and the legislative package that we have before us?

Prof. Cullen —I cannot say what the total amount is. It just seems to me that it is a pretty substantial amount of money and it is enough to buy every entitlement in the Murray-Darling Basin at existing water prices. We should be able to deliver a world-class sustainable irrigation and environmental community with those resources if we can get it right and invest that money wisely.

Senator O’BRIEN —How do we ensure that we do not just drive up the price of water by the Commonwealth intervening in the market so that that capacity remains?

Prof. Cullen —The New South Wales government has been investing in the market for its Riverbank Program for the Macquarie and the Gwydir systems. You do not have to just blunder into the market and distort the market. They have been purchasing water. There have been many willing sellers. They have been quite disciplined in their purchasing within a price range. I think the Natural Resources Commission in Sydney tried to do an assessment to see whether that had any impact on water prices and could not find any particular impact. So you buy slowly and you buy certain amounts from each valley. You do not need to distort prices if you have a smart purchaser in the market to recover environmental water.

Dr Buchan —It is fair to say that there are a number of very credible organisations and institutes that have asked this question, and some of the country’s best economists, through the Productivity Commission, the Business Council of Australia, ABARE and so on. They have all concluded that the most cost-efficient and effective way of recovering water for the environment and for addressing the problem of overallocation and overuse is to use market based instruments. But I think within that context everybody is well aware that the worst possible scenario would be a number of different governments all in the market competing not just with other water users but with each other to try to purchase the same water licences. People are very aware of that and very keen to avoid that scenario. Of course, using market based instruments does not just mean purchasing whole entitlements, either. It can be the purchase of partial rights or derivatives. There is a lot of work going into how we try to use market based instruments to match up the types of water that we need to recover with the ecological needs of the assets that we are trying to protect. To envisage a number of governments with big pockets competing with each other and driving the price of water up is something that everybody is keen on avoiding. There is a high degree of awareness of that.

Ms Bones —Someone suggested to me the other day that the entry of the New South Wales government into the water market, particularly in those sites that Professor Cullen mentioned, had actually not pushed up prices but had stabilised markets somewhat. People seem more confident in the market if the government was actually in there operating in it as well.

Senator O’BRIEN —What does ‘stabilise’ mean? Does that mean that they kept it up rather than pushed it up? I am not sure what you mean by ‘stabilise’.

Ms Bones —I think the presence of a government in the water market may give irrigators or whoever wants to purchase water more confidence in the integrity of the allocations. That is what was being suggested to me.

Senator O’BRIEN —I take it there is no necessity for a provision that would require first the offer of water to be made to this allocation process when it went on the market; rather than a bidding process, a first offer and refusal?

Mr Cosier —I would like to offer some comments as well. Most people who have answered that question have made the statement, which I would also support, that there is a range of economic instruments that you can use. If you go back to the fundamental principles, as Professor Cullen was saying earlier, for what purpose is the first test. What we are pleased about with this bill is that it does set up a planning process in the basin plan to determine what those sustainable levels of extraction are. Once you have determined what the purpose is there may be a range of tools, which may include contract arrangements with irrigators. Professor Young earlier this year suggested a Coles-type share buyback scheme where all irrigators are written to and asked how much water they are prepared to sell into that scheme. There is a perception when people talk about buying water that people believe it means buying out an entire irrigation licence. Many irrigators might, for example, decide to offer one per cent, two per cent or five per cent of their entitlement, knowing that they will get X dollars, and then use their funds to improve their irrigation infrastructure and water efficiency. There is a range of tools. Professor Young mentioned this earlier this morning as well. What we do need to do once we get into the process of planning and allocating water for environmental purposes is to make sure we use the most cost-effective means for that money to deliver the outcomes that Professor Cullen mentioned earlier, and not just the simplistic, ‘We have to go and buy all these irrigation licenses.’

Senator O’BRIEN —Do the witnesses now before the committee support the fact that the legislation specifically rules out compulsory acquisition?

Mr Cosier —In the Wentworth Group submission you will find written suggestions—

Senator O’BRIEN —I know the Wentworth Group’s submission, but there are other witnesses here and I am asking more generally.

Mr Sydes —I can comment briefly on that. Compulsory acquisition should be a last resort. From a basic civil liberties perspective, there are very good reasons for that and there are very reasons for the constitutional protection that we have with respect to property rights. 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.

Dr Buchan —It would be a worst case scenario to envisage governments just turning up at someone’s farm gate and saying, ‘We are having your water. You are out.’ That is ridiculous and extremely unfair. Realistically, we need to go through an enormous process of change across the basin. If that process of change is done well with good consultation with communities and gives them the information that they need to envisage where they are likely to be in 10, 20 or 50 years time, compulsory acquisition can be a useful tool in the toolkit. There are advantages with that. You are exempt from capital gains tax and you can gain greater than market value for your water. Whilst I do not think anybody was thinking that it would be a tool of first choice and to be used heavy-handedly, which would be very unfair, it just seems ridiculous to tie the government’s hand and remove an important potential tool from the toolkit.

Prof. Cullen —I would like to support that. I think it is a mistake to rule it out. I do not imagine it would be used all that frequently, but you can see a situation where perhaps 80 per cent of the water had gone out of a particular area and the remaining 20 per cent would have to carry a huge burden if they were to carry the management costs of keeping that infrastructure operating. In that situation a compulsory acquisition might well have significant advantages, as I understand it, from the point of view of capital gains tax to those farmers. I think you need to look at the tax situation in terms of a straight purchase versus an acquisition. There might be situations where the farming community would prefer compulsory acquisitions. It would be silly to rule it out, but I would not imagine it would be used all that frequently.

Senator O’BRIEN —But the legislation effectively provides, for want of other terminology, for an abolition of excess water entitlements from the point where the current management plan expires, 2014 or 2019, depending on which state. Is that not an adequate replacement to that power? I am talking about section 77, for example, of the legislation. There is a lot in it and we have a very short time to look at it.

Mr Cosier —As I understand it, the bill does not provide the ability for the Commonwealth to acquire compulsorily. It says this bill does not.

Senator O’BRIEN —Clause 55 says no compulsory acquisition, but clause 77 says that if you get to a point where the current management arrangements—the National Water Initiative—expire and we have not reached the cap, the difference between the cap and the entitlement will be removed and there is a compensation provision. The states are arguing about the shares and the risk of that, but that is how the legislation works as I understand it. The legislation provides for, call it what you will, not a compulsory acquisition provision but an abolition of entitlement provision. I do not know what the difference is, but that is what the legislation says.

Mr Cosier —With that information I still think the statements that both Professor Cullen and Dr Buchan made still stand. As you have just described it, that still stands as a last resort power, and our argument is that it would be a mistake to rule it out for a number of reasons, because there might be mutual self-interest in a particular district or, more broadly, in having that power available. Notwithstanding what you have just described from that part of the bill, which seems to be a reserve power at the end of a process, our position would be that it would be a mistake to rule it out now.

Prof. Cullen —My concern is that earlier in the bill there are transitional arrangements to get back to the sustainable levels of extraction within a five-year period. I am concerned that some of these do not kick in until 2014. There is a timing issue there that I think is a bit of a worry. The system is perhaps changing more quickly than this timetable envisages.

Ms Bones —I would support that. If we put a time frame on when it is okay to remove licences from the system without them actually being offered, we are still tying our hands because the system is changing more quickly than that.

Senator KEMP —Everyone seems to agree that this is a matter or urgency and that has been stressed in Professor Cullen’s paper very firmly indeed. The slight paradox is that you are still worried that, despite the length of time in which this has been discussed, which is over six months, we are now in a position where of course we are anxious to get the bill through the parliament. I think you have qualifications there in that it is too rushed. How damaging do you think the attitude of the Victorian government has been? The process has obviously been delayed by their attitude, but the fact is that they are unwilling to take part in these arrangements. Could I have your views on how much of a backward step that is?

Prof. Cullen —I have not been privy to the discussions between the governments and I did not hear the evidence this morning. My position has been that the Prime Minister’s offer and preparedness to seriously address this problem is a very significant step forward and I firmly welcomed it when he made it. The Victorians probably have managed their water in a better way than some other jurisdictions and did have a series of very legitimate questions as to how the cap would be set, how the seasonal allocations might be done and the rest of it. At that stage I do not think that they were necessarily getting very substantive answers from the Commonwealth officers they were dealing with. So it is one of those things. I felt there was a bit of virtue on both sides. The Victorians were asking some quite proper questions, which were hard to answer until we have teased through some of the issues that we have been talking about.

I had hoped that the ongoing dialogue between the governments would have led to some resolution and an intergovernmental agreement that they could all sign to. I do not think that we can make this work without the states coming onboard in a serious and firm intergovernmental agreement. I certainly hope governments will keep talking and will try to get to that, because without that I think it will be a very messy outcome.

Senator KEMP —I think we are all agreed that it is always good to talk, but in the end you have to make decisions. People can have fixed views. The Victorians have a fixed view in the end. It seems to me that there has been a tremendous amount of discussion over a long period and they appear to be quite inflexible. I just wonder whether you could reflect a bit on the Victorian position. This is an issue that you feel passionately about. If anything, we have all been too slow with this and we want urgency. We have really quite fundamental differences now with one government that has a particular view. All other governments, with some qualifications, have signed on to it. The national farmers have signed on to it. The irrigators have all signed on to it. We have one group that is outside the paddock, and it is called the Victorian government. What advice can you give the Victorian government?

Prof. Cullen —I have not seen the details of the points of argument. I guess you rehearsed them this morning.

Senator KEMP —We are no clearer.

Senator O’BRIEN —Far from it.

CHAIR —No changes, anyway.

Senator KEMP —I would like to get Professor Cullen’s answer to that question.

Prof. Cullen —I really am not in a position to answer it because I do not have the detailed discussion points that the Victorian government has been having with the Commonwealth. I have not been privy to those discussions. They have not been in the public arena. It seemed to me from some preliminary discussions that I had with the Victorians they had some quite sensible questions that were reasonable to put on the table and I had hoped they could have been addressed. They were to do with the issues of seasonal allocations and how they were going to set the cap, and those questions are still there.

Senator KEMP —I think considerable answers have been given. I had rather hoped, Professor Cullen, that you might have been able to take a bolder stance on this. This is a huge issue. It is a good cop-out to say that we need to keep on talking, but at the end of the day if positions are fundamentally different and cannot be reconciled someone has to make a decision. We have one government that is completely outside the paddock. All other governments want to come in. Everyone wants to get it done. I put that on the table. I know it is a difficult issue for you, but it seems to me that it is time the Victorians came to the party, and people like you can play a significant role in achieving that outcome.

Dr Buchan —That very few people really understand what those impediments may or may not have been illustrates the fact that there has been a lack of openness and transparency in this process. A bill about something really important is being rammed through in a short time. A bit more transparency and consultation across-the-board would have assisted this process. Also, we understand that, given the lack of the full referral of powers, this bill and this act, irrespective of how good we can make it by the time it actually transpires into an act, will take us only a part of the way towards achieving the vision set out by the Prime Minister in January. That vision is where we need to get to, and there is a whole lot of discussion that needs to go on beyond this act in itself, which is: how do we make up the difference between where this act will take us to and where we need to actually be. We need to learn from the last six months and not be subject to political interference and pressure from vested interest groups. It needs to be a genuinely independent inquiry into what sort of change is necessary, how we do it. We need something perhaps like a royal commission that can start to ask those questions and do so in a genuinely independent and transparent way.

Senator KEMP —I would have to say I do not agree with you. This is a very bold initiative. We are faced with a major crisis and we have governments that are here to make important decisions. We have a government, that has made a decision, which I think you yourself have broadly signed on to. You support the vision. What has to happen is that this vision has got to be backed up by people who think it is important.

Dr Buchan —That is right. I agree with that.

Senator KEMP —Of course things can always be improved and of course things can be finessed, but at the end of the day someone has to make a decision and someone has to carry this major initiative through. We basically have one government adopting a wrecking attitude, and that is the truth of the matter.

Mr Sydes —I would like to make a comment on that from a Victorian perspective and from the basis of my familiarity with the Victorian legislative regime, the Water Act 1989, Victoria. It is true, as Mr Harris was saying this morning, that there are differences in the regime in Victoria and we have gone our own way to a degree in terms of the implementation of the National Water Initiative. I think those differences mean there are some genuine and difficult problems that need to be resolved in terms of bringing everyone within a consistent basin planning structure. The bill that we now have, as Dr Buchan has just pointed out, does not include a lot of the key elements that are there in the National Plan for Water Security, particularly the seasonal allocation component and the available water determination role that was previously envisaged for the Murray-Darling Basin Authority.

Senator KEMP —And the reason for that is?

Mr Sydes —The reason for that is the refusal of Victoria to refer the powers.

Senator KEMP —That is exactly right.

Mr Sydes —Those issues, to implement the full vision of the National Plan for Water Security, need to be resolved. They are difficult issues and they will not be able to be resolved by the Commonwealth going it alone. There needs to be a cooperative approach. The other broad point I would make there is that, if we do move to the full implementation of the National Plan for Water Security, it is based on a cooperative approach. There needs to be an ongoing cooperation between the states and the Commonwealth to make this effective, and the effectiveness of the basin planning regime is not based on a Commonwealth takeover of all functions. There will continue to be a critical and important role played by state based agencies and state governments. That is the reason that this call for a broader inquiry and a more public process to try to resolve the outstanding issues is a good one.

Senator KEMP —We basically have one government that is causing the problems and we have all the other governments involved and supportive. We had the groups before this table who actually supported the original vision and wanted the original vision to be carried through. I do not think it is as hard as you are making out at the table. What you are finding it difficult to do is to bring to an end the relentless discussion so that action can be taken. Professor Cullen, in his paper, which I find very persuasive, thinks that the whole thing has been carried out since the National Water Initiative, which he strongly supported, and wanted more action and more quickly. We are taking action and we are taking it quickly, and now part of the proposal is to have more discussion. When does the music stop? Someone needs to make a decision and get on with it. You have to accept the fact that some governments because of particular vested interests will not agree and will probably never agree. The Commonwealth has to take action. Anyway, I have made the point.

Mr Cosier —You are asking us to say whether we think the Victorian government is right or wrong. Our answer is that we do not know because we have not been privy to what they have asked for or have not asked for. If you are asking us whether we support this legislation, you have heard today from both farming and irrigator groups, environment groups, science groups and most of the states that we do support this legislation in principle. I agree with you that the issues outstanding with Victoria, not even knowing what the details are, cannot possibly be as complex and difficult as the National Water Initiative was in 2004. If we can get national agreement from the NWI in 2004, surely we can get national agreement on the legislative implementation of that reform, which was historic. Hopefully, the introduction of this bill by the federal parliament this week will act as another trigger to get the parties back together, being yourselves and the Victorian government, and resolve those details. They cannot possibly be as difficult as they are being portrayed in the media.

Senator BIRMINGHAM —I thought Senator Kemp was about to get rid of the state of Victoria. He was getting very excited there for a moment. I would like to finish on that line of questioning and then go somewhere else. The environment groups, in particular, have all stated their support for the national plan involving referral as announced by the Prime Minister earlier this year. I think overwhelmingly you have communicated that publicly. Have you had any direct communications with the Victorian government?

Dr Buchan —We have certainly been asking questions, and you get rather selective answers to those questions. We do not feel that we have anywhere near a full understanding of Victoria’s position on this and the questions that they asked of the Commonwealth and whether answers were forthcoming.

Senator BIRMINGHAM —You are no orphan in that regard. I assume in asking questions you have also been making clear your support for the plan?

Dr Buchan —Of course.

Senator BIRMINGHAM —That puts to rest the fact that the Victorian government representatives when appearing before us this morning started by telling us that they had the support of irrigator groups and environmental groups. The Victorian Farmers Federation has cleared up one aspect of that and the environment groups have cleared up the other aspect of that. We know how isolated Victoria is. I think Senator Kemp has made the case very well that, unfortunately, Victoria and whole river system will be worse off as a result of their stubbornness on this issue.

Ms Bones —Would I be able to respond to that?

CHAIR —Please proceed.

Ms Bones —As far as WWF’s dealings with the Victorian government, we have certainly been briefing them on our concerns with the legislation as it is being drafted. I would not say that we think their position is completely outside the realm of being acceptable. I do think that there are still grounds to negotiate. If the Commonwealth takes over control of the cap and Victoria is required to undertake a whole lot of actions to implement what the Commonwealth says the new cap is, I think there is still room for cooperation. I would hate to see the opportunities for a bit more negotiation slip away because of the rush of this legislation through the chamber. I would also say that New South Wales this morning did not sound particularly supportive of the legislation as it stands, so while we are discussing the Victorian’s position on the bill perhaps we could discuss more broadly the New South Wales position on the bill. I did not get the impression that they are jumping up and down to support it.

Senator BIRMINGHAM —I think New South Wales is trying to cost shift, and that is pretty much their sole area of objection. In terms of consultation, obviously the intergovernmental agreement will continue to be negotiated and I would hope that Victoria will negotiate that in good faith. Obviously, that will be the point where we would all like to see some further progress. Indeed, I wholeheartedly agree with nearly all of you who have said that you hope this is a further step, because there are certainly more steps that need to be taken. Different bodies have put forward some specific amendments. I wanted to seek Professor Cullen’s opinion. Both yourself and Professor Young have advocated an amendment to section 20 to include a reference into the purpose of the basin plan for ensuring minimum flows through the river system, and the South Australian government has suggested an amendment to clause 22, including mandatory content in the basin plan, an end of River Murray health and maintenance flow target.

I sense that both of these are attempting to achieve a similar outcome, which is getting a supply of water considered within the basin plan to the end of the River Murray to ensure the sustainability of the Coorong and so on, which is critical to my home state. Professor Cullen, do you have any thoughts on this? Obviously you have advocated one of these proposals. Am I reading it appropriately that they both seem to be after the same ends and do you have any comment on the South Australian one versus yours?

Prof. Cullen —I think they are both heading for the same end. I do not particularly have a view about the different approaches to it. I just want to point out that the difficulty is in assuming that the end of basin flow is in fact an annual flow. What the lower Murray needs is probably a good wetting—I do not know what the frequency is—every two or three years or every decade, when you get those wet years. If we are looking at minimum flow scenarios for the lower Murray, we have to make sure that we average it over a reasonable time scale to cope with the variability, because that is what connects to the sea. It is probably the sort of detail that should be in the basin plan. We need to stop thinking of this as a stable system and start thinking about the variability that we get over a decade or even a long time. It is the couple of wet flushes every decade that are so critical to maintaining the health of the Coorong. The fact that it has not had it for so long is why it is now hyper saline and in very serious trouble. I do not have a strong view on the actual comparison between the two approaches. It is a fairly detailed and technical argument, so maybe getting it enshrined into the basin plan is probably the best place.

Mr Cosier —As to your view on the head of power in this legislation, being the Ramsar convention, in the Coorong, it goes back to the point that Professor Cullen and others have made earlier today. The first test is to determine what outcome you are seeking to achieve in the Coorong. Clearly, environmental flows are one component of that process but are not necessarily the only answer to that process. I would support Professor Cullen in saying, if the implication is a continuous volumetric delivery of water to the barrages every single year, that would probably be a mistake, because there would be far more effective and efficient ways of achieving the outcome, which is to protect the Ramsar site values, than that process alone. One of the opportunities I think this bill gives the Commonwealth through the basin plan is to look at those areas of national and international environmental significance and move the science forward so we can determine what those values are and what water needs they have.

Senator BIRMINGHAM —Of course, this is part of the hassle of negotiating with a whole range of jurisdictions. We are looking at the phasing out of state management plans, with Victoria’s being the latest in 2019, before the states adopt new management plans that are then consistent with the national management plan implemented by the new authority. Are there any feelings as to whether there is a capacity for that to be quicker? I suspect the first part of the question is redundant in that there is no capacity to get the states onboard more quickly. Or is that a misinterpretation on my part?

Mr Cosier —What this legislation says is that you should protect those environmental assets. There are some very good and solid definitions to back up that principle. At the end of the day the decisions that we make this year and next year will be based on the science that is already there. A lot of the problems that we have had is that the science is not there to adequately guide those decisions. If you are talking about will this delay processes even further, it should not, because the science on which a new decision will be made next year will, by its very definition, need to be based on the science that exists today. That could be inside existing plans, processes or whatever. This bill gives the advantage that there is a focus on those assets, and that is where we seem to have a stalled implementation at the moment.

Senator IAN MACDONALD —One of the duties of this inquiry is to recommend to the Senate whether the bill should go ahead as it is, whether it should be amended or whether it should be withdrawn. I must say that, after hearing from some of the witnesses and particularly our friends on the phone, I am inclined to think that perhaps we should recommend that the bill does not proceed. As to the consequences of that, were that recommendation adopted, and bearing in mind, in case people have not recognised, we are running into an election, which I suspect is one of the reasons why Victoria is being so recalcitrant, and more consultations were to be had, anyone who understands how governance works would know that it is unlikely that this would proceed far in what is from hereon in likely to be the election campaign, You are looking towards almost this time next year before you would be having additional consultations. I wonder if people could help me in suggesting whether it is better to proceed with this, what some people call, a flawed bill in the expectation that it will go a long way to fixing some problems or whether we should keep talking for another year and perhaps bring in another bill in a year’s time and have the same sort of inquiry when people will not be happy? Could someone give me some help on that. I think everybody has agreed that the initial proposal by the Prime Minister in January was a good one. There was every expectation that all states would agree. All states but one have agreed, and I am not sure what it says about those states if Victoria happens to be right; does that mean they are all wrong? I am just wondering whether we should forget about it and come back in a year’s time or should we act now and at least start the process of looking after the Murray-Darling Basin?

Ms Bones —My hope for this legislation is that this intergovernmental agreement would have been at least at the point where things like the risk assessment that New South Wales is concerned about would be better dealt with. I think the passage of the legislation should ideally follow the finalisation of the intergovernmental agreement. I would not like to see the legislation fall over or be at the same place this time next year, but also I think Victoria’s absence does throw a significant spanner in the works, which the process of developing the IGA gives you an opportunity to fix. If I had an opportunity to provide a recommendation from a Senate inquiry my recommendation would be that the intergovernmental agreement should be finalised prior to the passage of the legislation in order to lay the groundwork for that cooperative framework that we need to manage the basin into the future.

Senator IAN MACDONALD —The original proposal, which everyone agreed to and thought was a good idea, including yourself, thought that the transference of powers was a good idea. We are now in this position where it is not. So you are suggesting we should say to Victoria, others and the Commonwealth that you must agree before this legislation goes to the parliament? Bear in mind that this sitting is probably if not the last then the second or third last before the election. It is pretty obvious the election is going to be in November some time, and you know as much as I do. A basic understanding of political life would tell you that. Nothing will get done. If we say, ‘No, don’t pass the legislation until the IGA is agreed’, we are still looking at this time next year before we might be getting somewhere. I repeat my question: is it better for this committee to recommend that we do not proceed with the bill now, accepting that will mean it will not come back to the parliament until mid-way through next year at the very earliest, or should we go ahead with something that we all agree is not the best, unless someone adopts my principle of having a referendum and taking it over compulsorily. But on the basis of the situation as it is, is it better to go ahead with slightly flawed legislation or should we pull the whole thing?

Mr Sydes —In my submission the bill should proceed, but it will leave the job half done. There needs to be some mechanism in place to ensure that the job is completed.

Senator IAN MACDONALD —That would be my view.

Prof. Cullen —We have supported the bill and we support it going forward. We have proposed some areas for possible amendments, but I think the bill does establish some clear principles for going forward. It reaffirms the agreed principles of the National Water Initiative. There will be areas where it needs some further development and they are not all apparent at the moment. But the bill does not do any harm and in fact it does enshrine those key principles, so we support it going forward.

Dr Buchan —I agree with all of those comments as well. There is substantial room for improvement to the bill in itself, as articulated in our submission and in others, but it will only take us part of the way. It does need to be followed up with a consideration of how we then go forward to achieve the full objectives of the National Plan for Water Security. One important thing is that the arrangements for the $6 billion and $2 billion are rolled out quickly—sooner rather than later. The longer we wait the harder the problem becomes to fix and the more expensive it becomes. We have recognised this problem since at least 1994, and finally it looks as if there is a bucket of money on the table to drive these reforms. That should be rolled out quickly and not subject to delay because of the failure of this bill or a subsequent plan to take us all the way.

Senator IAN MACDONALD —Thank you for that. I think we all agree that we will continue, and I guess it behoves all of us to try to convince the Victorian government to be less combative. Perhaps after the election they might be.

CHAIR —That is a convenient point to conclude. I thank you all for appearing both in person and by teleconference phone call. Your evidence has been useful and your opinions have been valued.

Proceedings suspended from 2.58 pm to 3.18 pm