Speech – OzWater Conference
Brisbane, 30 April 2014
**Check against delivery **

Water reform in Australia has been an ongoing pursuit for policy makers. However the past ten years has seen the most significant reform occur. We are now just shy of a decade since the National Water Initiative document was signed at the COAG June 2004 meeting, which was the starting point for a water reform push that has led to one of the most significant and far sighted policy changes in Australia’s history. 

The adoption of the National Water Initiative (NWI) principles has fundamentally changed the focus for water policy and water management in Australia – and as evidenced from those in the audience today, the NWI and the Australian water industry have also influenced water management internationally.

The NWI has provided the opportunity to shift from the outdated notion that looked at the environment and the economy as two opposing aims, with the Initiative we have been able to move onto a more sophisticated understanding whereby the two are understood to be co-dependent, with a well-managed environment underpinning a strong economy, while a successful economy ensuring a healthy environment.

The reforms championed by the Howard Government created an enduring blueprint for the water reform we continue to strive towards today. The water sector has made great progress in relation to water reform and a decade on we have governments still committed to these principles and strong industry support to see this effort through.By extending standard economic and sustainability principles to water pricing, planning and allocation, the NWI continues to drive water efficiency and water-related investment that benefits us all.

While this remains inherently a simple principle, the impact this principle has had in terms of how we have navigated water reform and particularly navigated the worst of the dry times we have had over the last decade, has been immense.

This basic economic concept of having tradable rights in water has provided far greater certainty for investment, greater clarity for our environmental goals and improved our capacity to effectively deal with both expected and unexpected changes.

The need to assign a true value to our water resources is a sound principle to ensure proper and most efficient use of these resources. Towns, industry and irrigation have all substantially changed water use habits, moving to water use efficiency as an ongoing and long-term goal, so that water efficiency is no longer a catch phrase, but a core consideration.

The Abbott Government will continue this work, build upon these important reforms of the Howard Government and encourage the states to fulfil their key obligations. Our Government is strongly committed to the principles of valuing water, preserving it, trading it, using it efficiently and seeking maximum utility from it.

While the NWI may have been overly ambitious in some of its aims, such as the commitment to “substantially complete plans to address any existing over allocation for all river systems” by 2005 – given the period of time it took to develop the Basin Plan – however, it is only with this ambition that the creation of an enduring framework for bipartisan water management has been possible. 

Nowhere has this been more evident than in the development of the Murray Darling Basin Plan. The management of the Murray Darling Basin water resources has been a contentious and often parochial matter for more than a century and, while this is still the case at times, the NWI has provided the policy foundations that are supported by all governments, to deal with the matter of water allocation and use in the Basin. 

Our Government is committed to implementing the Basin Plan on time and in full, as evidenced by the Prime Minister's signing of the long awaited implementation agreements with New South Wales and Queensland in February. The finalisation of these agreements was the final pieces in the jigsaw in the whole array of intergovernmental agreements and national partnership agreements that made the Murray-Darling Basin Plan implementation a reality.

However, this was only possible due to our Government’s commitment that the Basin Plan would be more than a tradeoff between communities and the environment, because of our recognition that there could be good outcomes that moved beyond the environment-economy dichotomy and instead delivered positive benefits for both.

The Australian Government has already contracted 1900 gigalitres towards the 2019 target of recovering 2750 gigalitres in additional water to meet environmental needs of the Basin’s rivers and wetlands.

To bridge the remaining gap will not be a simple task and we understand the issues surrounding the recovery of the remaining water. We will bridge that gap in a careful way; ensuring practical steps are taken to deliver a sustainable outcome for the economy, for Basin communities and for the environment. After all, healthy rivers and healthy communities should be complementary, not contradictory.

More broadly, water markets fostered under the NWI have delivered tangible benefits across the Murray-Darling Basin. 

The separation of water from land has been an important step in the development of markets to facilitate increasing trade, allowing price signals to improve water market efficiency, water use efficiency and supporting redistribution of water resources to areas where they will be used most productively. 

Efficiently operating markets always come into their own in times of scarcity, where a limited resource should flow to the highest value outcomes. 

The water market certainly came into its own during the trials of the Millennium Drought. At its peak the proportion of water allocations traded in the Southern Murray-Darling increased – from 5 per cent in 2001 to over 30 per cent just six years later in 2007.

A new development in water markets is the opening up of trade between environmental and consumptive users. Trade of Commonwealth environmental water has always been possible under the Water Act, but only where it will improve the Commonwealth’s water holdings to meeting of environmental objectives across the Murray-Darling Basin. 

Trade opportunities for the independent Commonwealth Environmental Water Holder arise because sometimes the annual allocations associated with permanently held entitlements are not needed in one part of the system, yet more is needed in another part of the system.

Such trade flexibility has recently been demonstrated in two tenders overseen by the Commonwealth Environmental Water Holder in the Gwydir and Peel catchments. Importantly, the proceeds from these sales will be quarantined until such time as a purchase of water for greater environmental benefit is identified. Once again, this has provided a real world example of an effective market delivering a positive outcome to all participants.

The sale of a modest tranche of water allocations on the Gwydir was a good outcome for the environment as it allowed the Commonwealth Environmental Water Holder to obtain $3.2 million in funds to, at an optimal time in the future, purchase more water that can be more efficiently utilised for better environmental outcomes. 

The sale was also a good outcome for irrigators experiencing drier than expected seasonal conditions in the Gwydir, who purchased some ten billion litres of water to help deliver millions of dollars in agricultural output, finishing off crops that otherwise may not have been able to be completed.

The trading framework released by the Commonwealth Environmental Water Holder outlines how they will learn from these first trades and manage the water portfolio with the primary aim of environmental benefit, while also optimising the social and economic outcomes that may be achieved through their involvement in the water market.

We have taken steps to strengthen the operation of the market by removing legal uncertainty that existed around some trading, clarifying that basic tradable water rights are not subject to more complex regulations under the Corporations Act or ASIC Act that trading in derivatives type products face.

I am also pleased that new, national trading rules will come into effect across the Murray-Darling on 1 July, which will only help to further strengthen this water market.

In an effective water market, water property rights combined with the ability to trade, open up more options for irrigation businesses and environmental managers to manage their changing circumstances. Reform does not come without problems and in 2009 the Small Block Irrigators Exit Grant Package became an example of an adoption of bad policy that did not in any way meet the underpinning principles of the NWI. 

The program provided exit grants of up to $150,000 to assist irrigators out of production, requiring water licenses to be sold, plantings to be pulled out and irrigation equipment to be removed. 

Grant conditions also required that, during the five years after the grant was paid, the grant recipient and others with an interest in the block could not conduct any irrigation farming enterprise and that the land involved must also not be used for irrigation purposes for five years, unless the exit grant is repaid.

At the principle level it ignores the key objective of the NWI to separate land from water. The Exit Grants were particularly heavy handed, saying not only would the government recover water to help meet the new Sustainable Diversion Limits of the Basin Plan, but that government would also direct business and land use decisions too. 

At a practical level, irrigation systems have been left less efficient, with water having to flow past previously productive properties, before it gets to land still under irrigation. 

It is an impediment on the efficiency of the water market, which should see water being used on the properties where it can deliver the greatest benefit. Why should a neighbour, with efficient operations and surplus water entitlement, face government imposed restrictions from gaining efficiencies of scale by acquiring and producing on their adjoining properties?

Our Government will make sure that the actions we undertake around projects and programs are driven with value-for-money as a driving aim and we will also make sure our actions in this space are well founded and consistent with the NWI.

Importantly our Government will make sure that we get the work done, we will not just talk about it. Prime Minister Abbott has committed to be the infrastructure PM and with this comes a strong commitment to work with state jurisdictions and communities to get projects moving.

Our Government will focus on boosting infrastructure spending, and will work with the States and Territories on an asset recycling initiative. This groundbreaking policy will see the Commonwealth provide financial incentives to States and Territories that sell assets and recycle the proceeds of these sales into new productive infrastructure. 

If we free up the capital from existing assets we will be able to continue strongly growing the economy. 

Regardless of whether assets are in public or private hands, State and Territory Governments can work with the Australian Government to invest in productivity, enhancing infrastructure of the future, which will in turn help us grow jobs and the economy. 

Our Government understands that building water infrastructure must keep pace with economic activities and opportunities in Australia’s regions and with our population growth. We must also try to seize and utilise advantage in growing markets in the region, that are exemplified by the trade deals struck by the Prime Minister during his recent North Asia visits.

As part of the whole of Government approach to infrastructure the Abbott Government has ensured that discussions around the future of infrastructure specifically includes the water sector and water infrastructure. 

The Agriculture Minister, Barnaby Joyce announced recently a new ministerial working group that will identify new infrastructure projects to enhance and to continue to develop Australia’s water supply, which I am pleased to be a part of. 

This Ministerial working group will allow us to have the opportunity to examine pathways to upgrade existing water infrastructure or build new water infrastructure.  The economic, social and environmental challenges the Government has faced in seeking a more sustainable balance between productive and environmental needs in the Murray-Darling Basin will be highly relevant to the consideration of new water and agricultural developments, especially in northern Australia.

The Government has commissioned a white paper to identify the full potential of opportunity in Northern Australia which will define the policies for development in the north through to 2030. Our White Paper is a key election commitment and we expect it will be released at the end of the year. 

The Ministerial working group on which Minister Joyce and I are joined by Deputy Prime Minister Truss, Minister Hunt and Minister Briggs will give consideration to and provide the White Paper with our views on policies to best enable future water capture, storage and use in the North and elsewhere.

The White Paper is not a blunt instrument solely focussed on dams; the terms of reference provide significant latitude to explore a wider range of water infrastructure and water capture solutions, which should include groundwater resources and managed aquifer recharge. 

It will be important for the water sector to engage with the Commonwealth in a highly targeted manner around the potential for projects that are able to start to meet the challenges of increased water security in the near future.

Development will necessitate innovative and sustainable solutions. Full attention must be paid to setting sustainable limits on water use at the start of any development process and avoiding losses to downstream industries such as fisheries or ecosystems dependent on end of system flows. 

Just as we are committed to enabling development where possible, we are equally conscious that such development must learn from the mistakes of the past, not repeat them.

In accordance with the National Water Initiatives sound principles of cost recovery, price transparency and tradability must equally be applied to ensure new water infrastructure and irrigation development is commercially viable into the future and achieves the maximum economic return for both dollars invested and water used.

Rural water and rural market reforms have received the lion’s share of Commonwealth attention surrounding the NWI. However, these principles have also led to real benefits for the urban water sector, where there remain opportunities to continue to harness the effective use of market based principles.

The development of an urban water pricing signal has produced a pricing regime that is more transparent and cost reflective. There are now independent regulators determining urban water prices in five states and the ACT. But there are some ways to go. 

Economically, sound pricing of water to reflect the true costs of supply sends the right signals to consumers to value the water supplied to their businesses and their houses, and to use water wisely.

Yet too many urban water pricing regimes remain burdened by components that more closely resemble a form of land tax than effective user pays principles.

Other ways of demonstrating the value of water have been established. Such as the Water Efficiency Labelling and Standards Scheme which has encouraged the increased use of water efficient appliances across the nation. 

Australian Bureau of Statistics reports indicate that national domestic water consumption dropped from 103 kilolitres per capita in 2004-5 to 76 kilolitres per person just seven years later in 2011-12. 

While the drought and water restrictions were significant drivers of this change, the sustained decrease in the average amount of water consumed by Australian households can also be linked to Water Efficiency Labelling Scheme, which has created an inherent focus on water efficiency in an urban setting.

A consistent rise in the price of water has of course influenced our behaviour more fundamentally. Today households and businesses are far more inclined to spend money investing in water efficient household appliances along with actively planting more drought-resistant gardens.

Most importantly, the sense of responsibility that all Australians have for our water resources has increased, with a much better understanding of the scarcity of water and the importance of conserving these resources.

Applauding increased water use efficiency and improvements in placing a true value on water in both rural and urban settings should not be confused of course with applauding increased prices, that’s not a wise thing for a politician in particular to applaud! A properly functioning market should see downward pressure on prices wherever possible.

In the urban water landscape we do continue to see monopoly providers, deliverers and retailers of water, with varying levels of vertical integration. While the nature of storing and piping water to its end use presents as a natural monopoly, it is important for the states to consider all avenues to make urban water markets more efficient, driving prices down wherever possible.

Along with the potential for infrastructure reinvestment through privatisation, in the spirit of the NWI consideration should be given to greater competition or contestability for components of urban water delivery, especially in ways that can enhance the efficient operation of water markets and provide commensurate benefits to residential and business users, as well as the overall economy.

I see that this topic has been given significant coverage by the notable speakers and panels that have been arranged to speak over the course of this conference. From my portfolio perspective this is a pleasing sight, to have an industry this highly engaged in continuing to improve the principles underpinning an industry; it is something that Government can sometimes only wish for. 

But here we have representatives from right across this sector today, to discuss the future of the industry and with that the reforms that still need to be undertaken.

While the NWI has transformed the water sector fundamentally in a relatively short timeframe, we – the people in this room – are responsible for ensuring that these reforms are not left by the wayside. We must ensure that in the clamour for continued reform, the important and fundamental reforms of the past do not fall by the wayside.

While there has been recent speculation regarding the future of the National Water Commission, any potential changes to the NWC as an organisation will not diminish our Government’s support for the NWI. We are committed to ensuring that the underlying NWI principles are not forgotten. 

While I would never discuss rumour and innuendo surrounding Budget matters, it is useful to look closely at the functions, achievements and future of the NWC.

Under the National Water Commission Act 2004, the NWC has three core functions: 

?  firstly, monitoring, audit and assessment on priority national issues related to water management in Australia and on progress in implementing the NWI;
 ?  secondly, the NWC has additional functions in relation to independently assessing and reporting on the effectiveness of the implementation of the Murray-Darling Basin Plan and associated water resource plans; and 
 ?  finally, to work with broader stakeholders to facilitate improvements in water management throughout Australia.

These core functions are not disputed as being important. In addition to the need to ensure that the NWI aims are implemented, there has been substantial public funds invested in this space and we need to ensure that there is accountability and oversight of how these funds have been expended. There must never be backsliding on the reforms many have fought so had and invested so much to achieve.

This rings especially true in the case of the Murray-Darling Basin Plan assessment and reporting. Not only do we need independent oversight to report on the implementation, we also need to show that the $13 billion in public funds is achieving dividends commensurate with this most significant environmental of reforms. 

The necessity of these core functions are not in dispute. 

Transparency and increased information in the water sector has been one of the mechanisms that has enabled individuals to become more engaged in the emerging water markets, creating the market we have today.

The NWC has played a fundamentally important role in implementation of the NWI reforms. However, a decade on and with much implemented it is appropriate to assess the most efficient and effective pathways forward. 

Evolution in public policy can be a difficult endeavour at times and sometimes the most sensible decisions can be the hardest to sell. The Abbott Government has been clear in our unambiguous approach to the 2015 budget that difficult decisions must be made, the age of entitlement is over and that government must be as lean and efficient as is possible while delivering our policy priorities.  

We cannot keep an agency just because of things they have achieved but must focus on what is needed, warranted and most efficient for the future.

Again, I want to clearly state that our Government will continue to champion the principles of the NWI. We will ensure that going forward there remains oversight that ensures the principles of the NWI continue to be upheld in all areas of the water sector, from urban pricing principles to the management of rural and environmental water.

The ten year anniversary of the NWI offers a perfect moment to look at the success of many in promoting the sound principles of cost recovery, price transparency, tradability and sustainable use of our most precious liquid resource.

The OzWater conference is a good opportunity for the industry to work together, with government, to continue the discussion of the future of water reform – how best to implement continued reforms, to ensure we achieve the most from the advances made. 

Most importantly, this conference is an opportunity to look to the future of the industry and where the next layer of reforms are most needed, how we prioritise them, how we incentivise their delivery and how we ensure their effective implementation.

I look forward to hearing the outcomes of your deliberations and to working with industry on the water reforms of the future.