National water reform 2020

I, the Hon Joshua Frydenberg MP, Treasurer, pursuant to Parts 2 and 3 of the Productivity Commission Act 1998, hereby request that the Productivity Commission (Commission) undertake an Inquiry into progress with the reform of Australia's water resources sector. The Inquiry should have a particular emphasis on the progress of all Australian governments in achieving the objectives, outcomes and timelines anticipated under the Intergovernmental Agreement on a National Water Initiative (NWI).

Background

The Commission conducted its first national water reform Inquiry in 2017. The Commission found that Australia is managing its water resources well, given our dry and highly variable climate, and the importance of water to our economy. However there remains further work to do. Governments need to complete unfinished business from the NWI, including fully implementing entitlement and planning reforms, and respond to the challenges posed by population growth, climate change and changing community expectations.

In April 2019, the Australian Government responded to the Commission's 2017 Inquiry, including a commitment to the Commission's recommendation of renewing the NWI. The Australian Government is now working with state and territory governments to progress this matter.

State and territory governments are primarily responsible for the management of water resources within their jurisdictions. The Commonwealth has played a role in funding the acceleration of reform, providing leadership and coordination, and management of some transboundary resources where agreed by relevant jurisdictions.

Reform of the water sector has been ongoing over several decades, reflecting the fundamental importance of water to our economy and the significant challenges involved in managing a shared natural resource often impacted by periods of scarcity. A national approach to water reform started in 1994 through the landmark COAG water reform framework and has continued through subsequent initiatives such as the NWI (2004), the Water Act 2007 (Cwth) and the Murray-Darling Basin Plan (November 2012).

The Inquiry into the reform of Australia's water resources sector will fulfil the statutory requirement for the second of the Commission's triennial assessments of progress towards achieving the objectives and outcomes of the NWI required by section 88 of the Water Act 2007 and these terms of reference should be read in conjunction with that Act.

Scope of the inquiry

The Inquiry should assess progress towards achieving the objectives and outcomes of the NWI. As the NWI was agreed in 2004, the scope of the Inquiry is broader than that explicitly required by legislation. The Inquiry should also continue to examine whether the water reforms agreed in the NWI, along with any other subsequent reforms adopted by COAG, are achieving their intended outcomes.

In undertaking the Inquiry, the Commission should assess:

• progress in jurisdictional adoption of NWI principles, objectives and key outcomes, and where these have not been adopted, the impacts and opportunity costs of not doing so
• the outcomes to date of the NWI and related water reform efforts, taking account of other drivers of reform
• the extent to which the NWI reforms are adequate to support government responses to emerging or changing water management challenges such as climate change, and
• provide any further practical advice on addressing the joint governments' priorities for implementation of a renewed NWI, and
• provide specific practical advice on ways in which the NWI could be improved to support better social, economic and environmental outcomes.

The Commission should also consider:

• the interaction of water policy with other policy areas such as climate, energy, agriculture, forestry, land use planning and urban development
• the policy ramifications of emerging climate change impacts on water resources
• the provision of reliable water services to regional, rural and remote communities
• the principles to be satisfied for any government investment in major water infrastructure projects
• issues identified in the Commission's 2017 Report, and
• international experiences and examples.

In order to enhance transparency, the Commission should also assess the progress of water planning across Australia to improve clarity around the complex and often not well understood water planning processes within each jurisdiction. There should be a focus on policy and legislative processes for water planning in each jurisdiction, rather than detailed on-ground implementation arrangements. The Commission should seek to identify areas of better practice and areas where improvement is required. The Commission should consider the format for reporting this assessment to clearly convey its findings to a broad audience, including those stakeholders seeking to understand the state of water planning in their regional area.

The Commission should make recommendations on actions that the parties to the NWI might take to better achieve the NWI objectives and outcomes, and recommendations for future reform priorities. In making its recommendations, the Commission should provide specific, practical advice on ways in which the NWI could be improved, including specific advice to assist governments' progress their commitment to renew the NWI.

The prioritisation of areas for future reform efforts should reflect the Commission's view as to those areas where continued efforts are required to improve economic, social and environmental outcomes, maintain the gains achieved to date, or where improved outcomes will be delivered from further development of water resources.

The Commission should again avoid any duplication between this Inquiry and the Inquiry into the effectiveness of the implementation of the Basin Plan and the state and territory water resource plans.

Process

The Commission should undertake a comprehensive consultation process including establishing a stakeholder working group in accordance with section 89 of the Water Act 2007, holding hearings, inviting public submissions and releasing a draft report to the public. The Commission should consult with Commonwealth, state and territory governments, and consumer, environmental, industry and Indigenous stakeholders.

In conducting the analysis, the Commission should have regard to the submissions and reports of all relevant inquiries and government responses. The Commission should also take into account reform initiatives at the jurisdictional level relevant to the scope of the inquiry.

The final report is to be provided to the Government by 31 December 2020.

The Hon Josh Frydenberg MP
Treasurer

[Received 22 May 2020]