Climate change - water

Budget Review 2010-11 Index

Budget 2010–11: Climate change, energy and the environment

Water

Bill McCormick

Two initiatives, both concerned mainly with urban water, have seen their funding reduced within the large Water for the Future program. A third program involving buy-back of Murray-Darling Basin (MDB) water entitlements has had $100 million in capital funds brought forward from out years for spending in 2010–11.

Water for the Future—National Rainwater and Greywater initiative—reduced funding

The program ‘provides rebates of up to $500 towards the cost of installing rainwater tanks or new piping for greywater use, or up to $10,000 to surf life saving clubs to install a rainwater tank or as a contribution towards a larger water saving project.’^[1]

The funding for what was a $250 million initiative has been reduced by a further $180 million in the 2010–11 Budget in response to a lower than expected demand from the public. This comes after $44.4 million was already cut from the funding in 2009–10 and 2010–11 in the Mid-Year Economic and Fiscal Outlook (MYEFO) for the same reason (see Table 1). The $25.9 million that will eventually be provided is therefore only about one-tenth of the original budget of the program.

It is interesting to note that on 14 May 2010 the Department of the Environment, Water, Heritage and the Arts (DEWHA) website had the following message which implies that demand may be increasing.

The National Rainwater and Greywater Initiative is currently experiencing peak workloads. Applicants may find a small delay in payment as a result.[2]

Table 1: National Rainwater and Greywater initiative—reduced funding

Source: Budget measures: budget paper no. 2: 2010–11, p. 169.

Sophie Morris, writing in the Australian Financial Review, commented that:

The low demand for the rebates contrasts markedly with the massive response when the government offered subsidies for roof-top solar panels in recent years, leading to an $850 million cost blowout. The budget papers reveal that few were convinced by the offer of a rebate of up to $500 to invest in water-savings measures at home.

The economics of such an investment simply did not stack up as water prices would need to rise substantially before a home owner would save money by installing a rainwater tank or greywater system.[3]

Water for the Future—National Urban Water and Desalination Plan—reduced funding

Also, $70.3 million has been cut from funding to the National Urban Water and Desalination Plan, again due to a lower than expected demand. The cuts will be $20 million  in 2011–12 and $50.3 million in 2012–13. The $1 billion six year National Urban Water and Desalination Plan, which started in 2008–09, targets cities and towns of 50 000 people or more and supports projects that use desalination, recycling and stormwater harvesting to improve the security of water supply. Tax credits or grants to major projects with a minimum capital cost of $30 million will be provided up to a value of ten per cent of capital costs, capped at a maximum $100 million per project.[4]

The Taxation Institute of Australia, while supporting the proposed tax offsets, raised a number of issues about the draft legislation for the proposed urban water tax offset in 2009:

1. the scope of the ED (exposure draft) and the types of entities to which the urban water tax offset is available is too narrow, in that urban water tax offset is not available to any private sector entity that is not a company and that does not directly carry out the eligible project;

2. the cut-off date for claiming the urban water tax offset is arbitrary and inflexible, effectively meaning that taxpayers will be unable to claim an urban water tax offset for any milestones for the eligible project met, even 1 day, after the end of the 2012–13 income year;

3. the time limits of amending assessment claiming an urban water tax offset are unreasonably long and will leave taxpayers uncertain with respect to their tax position for unreasonably long period of time;

4. key aspect of the urban water tax offset scheme are to be governed by yet to be released guideline that may be amended or varies after taxpayers have been issued with a certificate under proposed section 402-760, leaving taxpayers with ongoing uncertainty as to their ability to claim urban water tax offsets; and

5. the assumption of obligations in return of the tax offset should be treated as not being taxable for GST and the amount of the offset needs to be calculated on a GST exclusive basis.[5]

Of the cities that are building desalination plants, only the desalination plant in Adelaide has had funding committed to its construction under this program.

Kerry Schott, managing director of Sydney Water, was critical of the program, saying it was based on a poor understanding of how urban water worked and argued that such investments should be fully funded by water users rather than government handouts.[6]

Water for the Future—accelerated water buy-backs for the Murray-Darling Basin

There is a commitment under the Restoring the Balance in the Murray-Darling Basin (MDB) program to spend $3.1 billion over 10 years to purchase water entitlements in the MDB to restore the environmental health of the MDB system, and to smooth the transition to the lower sustainable diversion limits anticipated in the new Basin Plan.[7] The Government has decided to bring forward $650 million in capital funds into 2009–10 to accelerate the purchase of environmental water, ‘by bringing purchases from the 2008–09 water tender to timely settlement, as well as providing for new water purchase initiatives in 2009–10’.[8]

In 2009–10, the MYEFO brought forward $320 million in capital funds ($220 million from 2010–11 and $100 million from 2011–12) to accelerate the water buy-backs under the Restoring the Balance in the MDB program.^[9] 2010–11 Budget Paper No. 2 shows that a further $330 million in capital funds which had been planned for expenditure in the three years 2011–2014 was brought forward for use in 2009–10.^[10] (This was originally reported in the 2009–10 EWHA Portfolio Supplementary Budget Statements.^[11])

There is an inconsistency between 2010–11 Budget Paper No. 2 and Environment, Water, Heritage and the Arts Portfolio Budget Statement 2010–11. Table 1.2 of the Portfolio Budget Statement shows that $100 million in capital funds are brought forward from 2012–13 to accelerate water buy-backs in 2010–11.^[12] However there is no mention of this movement of capital funds in 2010–11 Budget Paper no. 2.

The Minister for Climate Change, Energy Efficiency and Water, Senator Penny Wong said:

An additional $100 million in funding for water purchasing has been brought forward in the 2010–11 Federal Budget to help return the Murray Darling Basin’s rivers and wetlands to health.^[13]

So far in 2009–10 there have been three tenders for purchase of water entitlements in the Southern Basin of the MDB as well as one for a water entitlements purchase in the lower Balonne catchment in the Northern Basin.[14]

[1].    Australian government, Budget measures: budget paper no. 2: 2010–11, Commonwealth of Australia, Canberra, 2010, p 169, viewed 18 May 2010, http://www.budget.gov.au/2009-10/content/bp2/html/index.htm

[2].    Department of the Environment, Water, Heritage and the Arts (DEWHA), ‘National Rainwater and Greywater Initiative’, DEWHA website, viewed 17 May 2010, http://www.environment.gov.au/water/policy-programs/nrgi/index.html

[3].    S Morris, ‘Funds cut damp squib tank rebates’, Australian Financial Review, 12 May 2010, p 20, viewed 17 May 2010, http://parlinfo/parlInfo/download/media/pressclp/8ZNW6/upload_binary/8znw62.pdf;fileType=application%2Fpdf

[4].    Department of the Environment, Water, Heritage and the Arts (DEWHA), Environment budget overview 2008–09 - securing new water supplies, DEWHA website, viewed 17 May 2010, http://www.environment.gov.au/about/publications/budget/2008/ebo/pubs/budget-overview-08-09-securing-water-supplies.pdf

[5].    Taxation Institute of Australia, Exposure draft of the National Urban Water and Desalination Plan – urban water tax offset, submission to Treasury, 16 January 2009, pp. 1–2, viewed 18 May 2010, http://www.treasury.gov.au/documents/1481/PDF/Taxation_Institute_of_Australia.pdf,

[6].    S Morris, ‘Funds cut damp squib tank rebates’, op. cit.

[7].    Australian Government, Portfolio supplementary estimates statements 2009–10: Appropriation (Water Entitlements and Home Insulation) Bill (No. 1) 2009-2010 And Appropriation (Water Entitlements) Bill (No. 2) 2009-2010: Environment, Water, Heritage and the Arts Portfolio, Commonwealth of Australia, Canberra, 2008, p. 3, viewed 18 May 2010, http://www.environment.gov.au/about/publications/budget/2009/psaes/pubs/psaes-09-10.pdf

[8].    Ibid.

[9].    W Swan (Treasurer) and L Tanner (Minister for Finance), Mid-year economic and fiscal outlook 2009-10, p. 223, Commonwealth of Australia, Canberra, 2009, viewed 18 May 2010, http://www.budget.gov.au/2009-10/content/myefo/html/prelims.htm.

[10]. Australian government, Budget measures: budget paper no. 2: 2010–11, Commonwealth of Australia, Canberra, 2010, p 319, viewed 18 May 2010, http://www.budget.gov.au/2009-10/content/bp2/html/index.htm

[11]. Australian Government, Portfolio budget statements 2010–11: budget related paper no. 1.7: Environment, Water, Heritage and the Arts Portfolio, Commonwealth of Australia, Canberra, 2010, p. 28, viewed 20 May 2010, http://www.environment.gov.au/about/publications/budget/2010/pbs/pubs/pbs-2010-11.pdf

[12]   Ibid.

[13]. P Wong (Minister for Climate Change, Energy Efficiency and Water, Further $100 million for water purchasing, media release, 11 May 2010, viewed 20 May 2010, http://www.climatechange.gov.au/en/minister/wong/2010/media-releases/May/mr20100511.aspx

[14]. Department of the Environment, Water, Heritage and the Arts (DEWHA), ‘Restoring the balance in the Murray-Darling Basin water purchasing’, DEWHA website, viewed 17 May 2010, http://www.environment.gov.au/water/policy-programs/entitlement-purchasing/index.html#impact

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