Last month it was petrol, this month it’s water. When the public is worried about shortages, the response of politicians is to screw up the price mechanism to make things worse.

Yesterday the Business Council of Australia released a report, Water Under Pressure, making the fairly obvious point that the first step towards addressing our water shortage is to charge sensible prices for the stuff. But Victorian premier Steve Bracks rejected the idea of using price rather than rationing to control usage: “It has to be reasonable and affordable as well.”

Rationing may be a logical response to sudden emergencies. But water shortages are not like that; they are matters of long-term cause and effect. As a feature article in Saturday’s Australian put it, “Being surprised by a water shortage is like having a tortoise sneak up on you. You need to be looking the other way for an awfully long time.”

Everyone agrees that we need to use water more efficiently. But the best way to ensure that – as with petrol, or carbon emissions, or pretty much anything else – is to give people an economic incentive to do so, by making them pay the real cost of what they use.

Isn’t it unfair if the rich can buy more water than the poor? That’s a very deep question; it depends on what you mean by “unfair”. But the answer is no different if you substitute anything else for “water”. Poor people need to be able to buy food as well, but we don’t resort to food rationing to achieve that: we give them welfare payments so they can make their own choices about what they need most.

Our current policies don’t subsidise people for being poor, or for any other objective test of disadvantage: they subsidise them according to how much water they use. That’s just crazy.

The market can help us respond to scarcity by adjusting demand and supply, but only if it’s allowed to work. Giving people the product for less than its value just means that the crunch, when it comes, will be that much worse.

Peter Fray

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