The Commonwealth Government study on the impacts of the 4% water trading cap is damning. No wonder it was leaked to The Age, almost certainly by Penny Wong’s office. Crikey received a copy as well — you can read it here.

The trading cap prevents the sale of water rights out of irrigation areas of more than 4% per annum. It operates in NSW, Victoria and South Australia. The cap was not triggered in NSW during the 2007-08 irrigation season, and in South Australia, where little trading has occurred in the last two years, it has been ignored twice. In Victoria, however, the cap has prevented trades worth 7.4 gigalitres of water in 2007-08 alone across seven irrigation districts – or about 5% of all the water traded within Victoria.

Remarkably, that was during a prolonged dry.

According to the report, that cost about $5m and 40 jobs as farmers and irrigators who could’ve used water from other areas, which rights holders were willing to sell, were prevented by an absurd anti-competitive mechanism which the Victorian Government has promised to die in a ditch — or a canal — for. Some environmental purchases have also been prevented by the cap. And a number of purchases have had to be staggered across irrigation seasons to prevent the cap from being breached.

The report doesn’t address the growing attempts by some irrigators to prevent water sales by slapping punitive exit fees on rights holders willing to sell. That’s another rort that is standing in the way of both environmental purchases and farmers wishing to buy and sell water.

The report can’t find any evidence of the alleged social benefits of the trading cap, saying they’re impossible to untangle from the myriad of other factors at work in river communities, farms and business.

The report is no environmental rant — it analyses the cap strictly from an economic perspective, and finds it wanting. It recommends quickly moving to a 6% limit — which it reckons can be done by 1 January — and then eventually getting rid of it. It canvases other options, including exempting environmental purchases, but dismisses them.

This morning the Victorian Government was still boasting about defending the cap from pressure from other states. Either the Victorians are utterly clueless or, more likely, are extraordinarily bloodyminded, clinging to a rort that can’t even be shown to benefit the rorters.

Peter Fray

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Peter Fray
Editor-in-chief of Crikey