Yesterday at COAG, Kevin Rudd’s “cooperative federalism” met old-style politics, and came off second best — along with the Murray-Darling Basin and, in particular, the immensely stressed lower reaches of the system in South Australia.

The positives first – the rest of the COAG agreement was an excellent outcome. Regulatory harmonisation is unglamorous and will never attract any headlines (except in the AFR), but the program signed up to by Rudd and the Premiers will deliver real, ongoing benefits to businesses. It was accomplished the old-fashioned way – with the Commonwealth throwing money around to get the States to agree – but it is money well spent, especially if, as Rudd indicated at the press conference afterward, it is just the start of further and more detailed reform in areas like consumer policy and directors’ liability.

But for the MDB, it was a disaster.

While yesterday’s COAG communiqué goes to great lengths to explain how much money is being doled out to Queensland, NSW, the ACT, Victoria and SA, most of it is a re-announcement of funding already agreed back in March. The real issue was whether the Commonwealth and South Australia could convince John Brumby to drop his opposition to the removal of 4% annual cap on water trading.

In the absence of a deluge of Biblical proportions, a massive and rapid expansion of Commonwealth acquisition of water rights for environmental flows is the only thing that will save the Lower Lakes and Coorong, which include internationally-protected wetlands.

Let’s be clear about what the 4% cap is. Regardless of its role in “protecting” regional communities, it’s an anti-competitive mechanism intended to drive the price of water up for the benefit of irrigators and water speculators. And like most rural anti-competitive rorts, it has the full backing the National Party. But the irrigators have sunk their claws deep into the Victorian Labor Government as well. You can almost hear the bleating. “Our business models are based on 4%. You can’t lift it! Sovereign risk!”

John Brumby has already played a blinder on water. He secured a billion dollars from the Commonwealth back in March merely for signing up to a MDB management model that in essence maintained the states’ decision-making role in the MDB. Yesterday he got another $100m. The price? Agreement to the communiqué declaring — buried at the bottom of page 10 — that COAG had an ambition to lift the trading cap to 6% by the end of next year.

6%. 2009. Ambition.

Memo to Kevin Rudd — when you bribe someone, you’re supposed to get something decent in return.

This means no extra water for the lower Murray this year or next. Which, in the view of many, will kill off the Coorong, even if Mike Rann is putting a brave face on new irrigation projects that will start pumping water down there for irrigation and domestic use in two years’ time. No-one thinks the region has two years.

And don’t put any money on the cap reaching 6% in 2010, either.

The NSW Government hasn’t done too badly, either. As the Greens have pointed out, in addition to irrigation infrastructure funding, Morris Iemma declared yesterday that he was happy with the transfer of risk arising from an overall MDB water allocation limit.

Presumably the Commonwealth has accepted all liability potentially arising from previous State Government over-allocations of water rights that will be affected by the allocation limit. The cost of this wasn’t announced — possibly NSW itself doesn’t know how badly it has over-allocated water along the river. Who knows how much Rudd has signed Commonwealth taxpayers up for.

For once The Australian has got it dead right (Rick Wallace in particular). Without a massive increase in rainfall in the coming months, this is a disaster for the MDB. And a comprehensive victory for Brumby. Quite why the Fairfax press is hailing the deal isn’t clear. Perhaps they didn’t read the communiqué closely enough.

The outcome has united the Greens and the Liberals. Senator Rachel Siewert declared the outcome “a death sentence for the Coorong and Lower Lakes.” SA Liberal Senator Simon Birmingham, while acknowledging the long-term potential of the MDB Commission structure established by the agreement, declared the retention of the trading cap a “monumental failure” and “pathetic”.

In Birmingham’s view, the cap should be removed to allow water to go where it is most valued, and impacts on affected communities handled via structural adjustment assistance, not via water trading arrangements. Both argue that there is no date the commencement of the MDB action plan due to the decision to leave existing allocation plans in place until their expiration — in Victoria’s case, 2019.

Mike Rann said yesterday this was a test for cooperative federalism. Indeed it was, and it failed the test, failed miserably, undone by visionless, old-style parochial state politics espoused by John Brumby — and by the greed of irrigators, who have yet again emerged the winners. Labor has failed to deliver, and the impacts in South Australia are likely to be disastrous.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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