MDB infrastructure programs

Infrastructure projects in the Murray-Darling Basin have raised concerns over how taxpayer money is being spent

The government has announced some recent reviews into aspects of the Murray-Darling Basin (MDB) reforms but has not yet provided a substantive response to the recent Four Corners Cash Splash’ report, which highlighted some problems with the flagship of the Commonwealth’s water recovery programs in the MDB.

Its key message was that around $4 billion of taxpayer money has so far been spent on irrigation infrastructure upgrades, but that these funds underpinned an expansion in irrigation for mostly private gain.

To the casual observer, this might seem an unlikely outcome for a program with an environmental objective. Yet poor transparency around the infrastructure program and a lack of water accounting make it difficult to independently conclude differently.

Supporters of the infrastructure program point out that half of the water savings from the investments are typically handed back to the government. While this is superficially the case, Four Corners highlighted that there is neither any audit of the actual water savings nor acknowledgement of the water that previously returned to the environment through ‘leaky’ infrastructure and flood irrigation.

The problem is that the government does not disclose the extent of the overall improvement in ‘water efficiency’. Academics have made a wide range of estimates, but there is no way of confidently knowing the actual net water savings returned to the environment.

It’s even possible that the environment is no better off, despite the billions spent on water recovery – the government provides no information to disprove this point made on the Four Corners program.

It should concern everyone that the former Commonwealth official in charge of environmental water is concerned about the inaccuracy of the volumes of water attributed to the environment as well as the lack of transparency and precision of the accounting system used.

Supporters of the infrastructure subsidies also argue that Basin communities are better off as a result of the infrastructure program than if water were recovered through the buybacks program.

There is no doubt that both the infrastructure program and the buybacks program have been enormously beneficial to Basin communities – so much so that it has been demonstrated, by most economic indicators, that Basin communities and irrigators are substantially better placed than they would be without the water reforms.

There are significant design problems with both programs. But, as the infrastructure program costs at least two-and-a-half times the cost of buybacks, it is reasonable for taxpayers to ask whether Basin communities would have benefited more with just buybacks and whether the excess infrastructure expenditure should instead have been invested directly in better community facilities and services.

Reinforcing this, every dollar spent on health, education, and basic services could produce three to four times the jobs that might flow from a dollar spent on irrigation infrastructure.

Surveys of buyback sellers demonstrate that proceeds from water sales also support significant investment in irrigation and farm infrastructure. Irrigators who sell part of their water entitlements have been able to maintain their farm production levels and increase their cash flow from the sale of water.

This cash flow can then be used for on-farm restructuring. This would seem to be a much fairer and more cost-effective program – at one-third the cost to the taxpayer – for assisting irrigators to adjust.

So, it might confuse the reader that Parliament has ended the use of buybacks, thereby mandating that most of the remaining water recovery be through infrastructure upgrades. This allows irrigators to arbitrage the water recovery effort at the taxpayers’ expense.

Canny operators can exchange their water entitlements in return for infrastructure efficiency subsidies, and then replace that water through market purchases. The effect on the farm, the water market, and Basin communities is much the same, but the cost to the taxpayer is at least two-and-a-half times the price of direct buybacks.

But the problems highlighted by Four Corners are not new. The episode simply reveals supporting evidence for what many economists and scientists have long expected of the irrigation infrastructure program.

All governments, since the Howard Government committed to the program in 2007, have withstood expert criticism and maintained the program in its originally conceived form – largely, it seems, in fear of losing support for the Basin reforms from irrigators and the two largest Basin States.

In 2010, the Productivity Commission (PC) found that a substantial portion of direct government investment did not align with jurisdictions’ responsibilities outlined in the National Water Initiative. The new and refurbished water infrastructure projects were neither economically feasible nor environmentally sustainable.

The PC was also concerned about the lack of transparency and public benefit. A publicly available cost-benefit analysis must be made available for publicly funded projects, it found.

In 2012, the Auditor-General provided a scathing report on the infrastructure program, arguing that the department in charge lacked a concrete way of measuring water efficiency improvements and that what was in place at the time was insufficient. They suggested that improving the relevance of KPIs and deliverables would help track the progress and effectiveness of these programs.

The government agreed with the Auditor’s recommendations, yet Four Corners reveals that there has been no change.

In its most recent 2018 assessment of the water reforms, the PC found that costs had risen by around $2 billion as a result of replacing entitlement purchases with infrastructure projects.

The PC also noted the positive outcomes that have resulted from such projects, but that irrigators were the main, private beneficiaries of this. Further, there were no comprehensive assessments made questioning whether benefits had exceeded overall costs.

Four Corners has shone a light on a problematic and contentious government program. It behoves the government to commit to increased standards of transparency, proper accounting for water savings and demonstrating the public benefits.

A full audit of the program by the Auditor-General, including an assessment of the value to the taxpayer of water savings compared with other options, is the minimum required to illuminate the public on the issues recently raised by the show.

It is important not to conflate this issue as an attack on the Basin Plan itself or on the overall objective of improving environmental conditions in the MDB. This is about the best use of taxpayer funds to recover water to implement the Basin Plan, as well as ensuring proper standards of transparency and accountability for government programs.

Many observers have been calling for a national Royal Commission into the MDB reforms. This seems borne out of frustration that governments have continually refused to yield to reasonable concerns to review irrigation reforms, which many question are in the best public interest.

The government could relieve some of that pressure by commissioning an independent review of the irrigation infrastructure program and heeding any lessons learned. After all, evaluation and continuous program improvement are what robust public administration should be about.

This piece was first published at Policy Forum, Asia and the Pacific’s platform for public policy analysis and opinion. Read the original here: https://www.policyforum.net/is-australia-just-draining-taxpayer-money-in-the-murray-darling-basin/

Is Australia just draining taxpayer money in the Murray-Darling Basin?