News | 26th Jun, 2013

Water buy-backs better for taxpayers, study finds

26 June 2013
Clint Jasper, SA Country Hour, ABC
Water buybacks are a more cost effective way of delivering environmental flows to the Murray-Darling system when compared with infrastructure upgrades, a study has found.

Both voluntary buybacks of water from irrigators and upgrades to to Australia's irrigation infrastructure were features of the Water Act 2007, designed to return more environmental flows to the Murray-Darling Basin.

In a paper published recently in the Australian Journal of Agriculture and Resource Economics, associate professor Glyn Wittwer and senior research fellow Janine Dixon, from the Centre for Policy Studies at Monash University compared the policy tools, the economic case came down firmly on the side of water buybacks.

"I think water buybacks are better than infrastructure upgrades," Mr Wittwer says.

"Because buybacks cost between $1500 – $2000 per megalitre.

"And the most optimistic estimates on the cost of infrastructure upgrades is that they'll deliver additional effective water at more than two to three times that cost per megalitre."

But Mr Wittwer says this doesn't mean there's not a case for infrastructure upgrades.

"The Murray-Darling Basin was created in the environment where economic signals were not followed – basically the soldier settlements.

"It means there's been inefficiencies there from the beginning – therefore there's a case for having government intervention for modernising the infrastructure in the basin."

Mr Wittwer believes, however, the current mix of funding is weighed too heavily on the side of infrastructure upgrades.

"Most economists would lean toward a larger quantity of buybacks over time.

"These are voluntary and fully compensated, and over time, they might provide the basis for reinvestment in the farm itself."

While buybacks and infrastructure upgrades are tools for delivering environmental flows, they're often characterised as a tool for investment in the river based communities themselves.

Mr Wittwer says if this line of argument is to be followed, then an investment in essential services delivers far better returns than investment in irrigated agriculture.

"Some public funding of infrastructure upgrades is a good and necessary policy.

"But when it comes to the point of working out how to keep these communities going, there's a danger that money spent on one particular segment of the regional economy, may not provide the benefits that money spent elsewhere will."
"Our own modelling indicates that for a given amount of money spent on infrastructure upgrades, three to four times as many jobs will be created if spent on essential services in the Basin."

Mr Wittwer says the structure of regional Basin economies has changed, making investment in things like health, education and aged care more effective than spending in irrigated agriculture.


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