Harris, Edwyna --- "Saving the Murray. Troubled waters" [2007] MonashBusRw 27; (2007) 3(2) Monash Business Review 17

Saving the Murray
Troubled waters

Edwyna Harris

Edwyna Harris examines, in the light of historical experience, John Howard’s policy to put control of the Murray River into Federal hands.

There has been intense political and public debate regarding the likely outcomes of the Federal Government’s take-over bid of the mighty Murray River, as announced by John Howard on 25 January 2007. Yet a glance at the historical record of water administration offers us some answers to crucial questions such as:

• What is the likely outcome of high levels of government involvement in the water sector?

• Is this round of policy reform likely to be more successful than those that have gone before it?

• Willl the current round of reforms provide a lasting solution to Australia’s water scarcity problem?

To answer the first question, let’s look at Victoria’s experience over the century as it was the first state to introduce large-scale government-sponsored irrigation and its institutional framework was adopted in both New South Wales and South Australia.

Historically, irrigation in Victoria was intended to ‘drought-proof’ farmers and ‘make the deserts bloom’. Initial irrigation in the 1880s struggled under poor management, the 1890s depression and the experimental nature of irrigated agriculture. In 1905 the Victorian Government created the State Rivers and Water Supply Commission (SRWSC). It had the power of government combined with private initiative. However, it was never independent from politics and created a highly inefficient irrigation sector due to three main factors.

First, a refusal by successive governments to allow the SRWSC to increase water prices because of electoral repercussions. Second, farmers had no way of signalling their water demand to the SRWSC which allocated one acre-foot of water for every acre deemed irrigable without reference to specific topography, soil and crop type. As a result, some farmers got too much; others too little and because farmers could not trade their water rights, there was no correction mechanism.

Finally, inefficiencies were reinforced because farmers had to pay for a minimum quantity of water determined by the SRWSC, regardless of whether they used it or not. This led to substantial over-watering and other problems. The resulting highly inefficient irrigation sector suggests high government involvement is not the best response and the Howard Government reforms are set to increase government involvement.

Seeds of success?

Further historical perspective will answer the second question: ‘Is this round of policy reform likely to be more successful than those before it?’ For much of the 20^th century interstate water policy remained stagnant. At the state level, individual water authorities like the SRWSC had the power to make decisions over allocations, pricing and infrastructure construction within their boundaries. At the interstate level, sharing of the Murray River was administered by the Murray River Waters Agreement (MRWA) established in 1914. This agreement created an interstate commission to administer agreed volume allocations and coordinate joint infrastructure construction, referred to as the Murray River Commission (MRC).

It has been argued the MRC was a body without power, intentionally created in this way to prevent states losing control over decision-making. In the 1980s, with rising concerns over in-stream salinity levels, the MRC was replaced with the Murray-Darling Basin Commission (MDBC), an advisory body to the newly formed Murray-Darling Basin Ministerial Council. The Howard Government of today, prompted by shortcomings in the current management model, the current drought and fears of climate change, announced a revamp of these interstate institutional arrangements.

Specifically, Howard argues MDBC decisions reflect parochial interests, not the Basin as a whole, and suggests the MDBC be reconstituted as a Commonwealth Government agency reporting to a single minister.

However, this raises two concerns:

• If the MDBC operates under the direction of the Ministerial Council, the decisions of the MDBC will reflect parochial issues dominating the Council at that time. So the question is, how will changes to the MDBC reduce parochial interests?

• It is not clear how this new department will be insulated from the sort of political pressure it was formed to avoid.

All governments are required to weigh up the interests of their constituents and determine appropriate policy responses and if it is assumed governments have perfect information and are altruistic, their policies will maximise the welfare of society. However, if it is assumed that politicians face imperfect information and are motivated by their own short-run self-interest (to win the next election) then decisions will reflect the interests of the most powerful lobby groups. Based on this logic, it seems reasonable to suggest that the current Federal Government proposal is no more likely to achieve its aims than past interstate agreements.

A lasting solution

The final question to ask is will the current round of reforms provide a lasting solution to Australia’s water scarcity problem? The criterion for prioritising projects has not been outlined and therefore the allocation of funds under the new institutional arrangement could be subject to political manipulation based on the power of different interest groups.

The $1.5 billion tagged to stimulate private investment in modern irrigation methods overlooks the potential benefits of institutional reform in other areas, particularly in water markets, that could achieve these outcomes at lower costs. As part of this investment, $15 million will be allocated to develop informational tools to assist irrigators to calculate more precisely how much water to apply and when to meet plant needs. In the past, this type of information has been supplied by both state irrigation authorities such as the SRWSC and, more recently, by regional water authorities such as Victoria’s Goulburn-Murray Water.

However, one of the major impediments to improving on-farm efficiency is the lack of economic incentives. Historically, low water prices that did not reflect the costs of storage, delivery and maintenance have distorted incentives to farmers, encouraging the growth of low value crops on marginal lands and inefficient water use. The introduction of water trading in the late 1980s and subsequent expansion of water markets have gone part way to rectifying this problem. With markets providing a method for farmers to sell the over-allocated quantities, inefficiencies will be reduced.

On a final note, a couple of interesting points. First, historically, every fundamental institutional change in water administration within the states and at the interstate or federal level has been prompted by the occurrence of a protracted drought. Second, as has been pointed out many times since Howard’s proposal was released, 2007 is likely to be a federal election year and a sceptic would argue that the reform package has been motivated by short-run political self-interest rather than as a solution to ‘save the Murray’.

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Cite this article as

Harris, Edwyna. 'Saving the Murray'. Monash Business Review. 2007.; Monash University ePress: Victoria, Australia. http://www.epress.monash.edu.au/. : 17–18. DOI:10.2104/mbr07027

About the author

Edwyna Harris

Dr Edwyna Harris is a Lecturer in the Department of Economics, Monash University.