Commission Urges Rethink on Urban Water

Most urban households face severe restrictions on their use of water. These impose hidden costs that could amount to billions of dollars each year. Australia’s urban water shortages are only partly due to low rainfall. An important contributor has been inadequate institutional arrangements for the management of our urban water resources.

In a discussion paper released today, the Productivity Commission identifies a number of deficiencies in how urban water is currently managed, the most fundamental being the lack of any effective market.

Commission Chairman, Gary Banks said, ‘From storage and distribution through to delivery and waste water removal, urban water supply is the domain of government monopolies. Water charges cover storage and distribution costs, but ignore whether dams are overflowing or running dry. With no real urban water market, the difficulties of making efficient investment decisions are compounded.’

The paper reveals that some of the issues are complex to resolve and it does not lay out a particular blueprint for reform. Nevertheless, the Commission finds that the direction for reform seems clear. Key areas for more detailed assessment that it identifies include:

• allowing a greater role for prices to signal water scarcity and to allocate resources;
• removing artificial impediments to rural urban water trading; and
• removing barriers to competition in the supply and retailing of urban water.

The Commission argues that appropriate reforms would be best advanced through a comprehensive public review, to determine the merits of different options and build a greater understanding within the community of the costs of the status quo and the tradeoffs in pursuing change.