Introduction to Economics                                       Lesson 03/07



The Murray-Darling Basin is one of the countryís largest drainage divisions, covering over 1 million square kilometres, about 14% of the continental landmass.  It contains within it the nationís 3 longest rivers; the Darling [2740 kms], the Murray [2530 kms] and the Murrumbidgee [1690 kms].  The Basin extends into 4 of the 5 mainland states and includes the ACT.  It is home for approximately 2 million people and contains approximately 55,000 farms.  The Basin is thus of major significance, even by international standards.

Presently it is widely considered that the Basin is in a state of crisis, largely as a consequence of human activity.  Some of the problems include significant reduction in the number and area of wetlands, which has adversely impacted on the bio-diversity and ecology, distorted and inefficient water allocations, reduced water flows, increased land and river salinity, excessive land clearance, feral pests and the growth of weeds and algae.


Some Recent History

Debate over ownership and control of the river systems, in particular of the Murray, played a major part in the talks that led to Federation.  The inability of the colonies of NSW, Victoria and South Australia to agree on the issue probably delayed Federation for more than a decade.  Each Colony wanted to protect its own interests; Victoria & NSW were primarily concerned with water for irrigation, South Australia with maintaining riverboat navigability. 

In the event, the States retained ownership and control.  Section 100 of the Australian Constitution states:  ď The Commonwealth shall not, by any law or regulation of trade or commerce, abridge the right of a State or of the residents therein to the reasonable use of the waters of rivers for conservation or irrigationĒ.

An interstate conference was held in 1902 and in 1914 the riparian States concluded an agreement, the River Murray Waters Agreement dividing the water, with South Australia being guaranteed a sufficient monthly volume to ensure year-round riverboat navigability.  Prior to WW2 a number of dams, weirs and barrages were built, largely for irrigation but also for navigation.  They included the Hume, Burrinjuck and Eildon Dams.

Following WW2 considerable governmental emphasis was placed on inland development, particularly on irrigation for agriculture.  Large scale irrigated agriculture had begun in the 1880s with the Chaffee brothers, but its scope was considerably expanded and new crops such as cotton and rice were introduced, often with state assistance.

In 1992, the Murray-Darling Basin Agreement was concluded between the Commonwealth and the relevant State and Territory governments.  It set up the Murray Darling Basin Ministerial Council, with the Murray Darling Basin Commission as its executive arm.  Since then the Commission has managed, in a fashion, the Basinís land, water and environmental resources.          

The Murray Darling Basin Commission

Management of the Basinís resources by the Commission has been widely criticised.  This is not necessarily totally the Commissionís fault since the Agreement itself severely restricts its power.  The States were unwilling to relinquish much control and decisions are required to be unanimous; any one government can veto any proposal.

Nonetheless a number of recent decisions have attracted specific criticism from various parties.  Thus, for example, environmentalists and economists both criticised the Commissionís recent awarding of its National Salinity Prize to the Pyramid Creek Salt Interception and Harvesting Scheme.  Pyramid Creek, a private company has received $13 million in subsidies to extract salt for sale from ground water by evaporation.  Arguably the water evaporated is worth more than the salt collected.


Commonwealthís Scheme

Despite what it says in the Constitution, the Commonwealth government recently announced its intention to take sole control of the water management of the Murray-Darling Basin.  It proposes to spend ten and a half billion dollars over 10 years.   Six billion dollars is proposed to be spent improving irrigation channels to reduce water waste from evaporation and seepage.  Such waste is a major problem.  It has been calculated for instance that in the Victorian Wimmera-Mallee water delivery system, 85% of the water is so lost.

The Commonwealth also proposes a 3 billion dollar structural adjustment package, presumably intended to bring greater economic rationality and equity by buying out existing inefficient or unjustified water entitlements and assisting farmersí relocation.  Presently much irrigation water is being supplied at a charge of less than $50 per megalitre, whilst urban drinking water piped into homes is being charged at between $500 to $1000 per megalitre.  More rational pricing of irrigation water however is likely to render many marginal farms, and crops such as rice, uneconomic.

Although it is a Murray- Darling rescue package the Commonwealth is likely to sweeten the pot for the other States and the Northern Territory by allowing them also significant sums for their own water projects                                  



Reaction to the Federal governmentís Scheme has been mixed.  Amongst the States, NSW, which has an election coming up and appears likely, as proposed, to snare the lionís share of the $10 and a half billion, was quick to climb aboard.  South Australia was reluctant to give up State power, whilst Queensland, showing innovation and flair, sought to grab the pot of gold for itself by seeking to have accepted as a national development project, a resurrected 1930s plan [last rejected by the Queensland government in 2002] to pipe water from North Queensland rivers into the Murray-Darling Basin, possibly coupled with a secondary plan to pipe water from the northern NSW rivers.  Victoria, which as proposed, probably has the most to lose, was opposed.

As of the present, amongst the States, only Victoria has yet to agree to the Scheme.  The Federal Opposition is supportive but suggests it will need even more money than the amount proposed.  Whilst conservationists and believers in anthropogenic climate change are generally in favour some express doubt that the measures proposed go far enough and see the Scheme as merely a somewhat rushed election stunt.  In support of this view they can point to the fact of the forthcoming Federal election and to the paucity of detail accompanying the proposal and to the fact that it was not apparently even considered by Cabinet before being released.

Effectively the States will not formally be giving up their ownership of their particular share of the Basin.  Rather they will be ceding effective control thereof to the Commonwealth for a very large sum of money.  In one or two decades from now it might make little difference.   



                                                                                 David Sharp

                                                                                   13 March 2007



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