3.1
The Basin Plan has several inbuilt review mechanisms which place annual and five-yearly reporting requirements on the Murray-Darling Basin Authority (MDBA), the Department of Agriculture, Water and the Environment, the Commonwealth Environmental Water Holder (CEWH), and the basin states. The Productivity Commission is also responsible for assessing the plan every five years.
3.2
Outside of these inbuilt processes, there are several bodies which have power to scrutinise the implementation and effectiveness of the Basin Plan. These include parliamentary committees, government-commissioned reviews, and Royal Commissions. However, evidence to the committee suggests these mechanisms can sometimes be impeded by the multijurisdictional nature of the plan and its implementation within a federal system.
3.3
This chapter summarises some of the barriers faced by the Murray-Darling Basin Royal Commission, the challenges encountered by the Australian Competition and Consumer Commission (ACCC) during its water markets inquiry, some of the jurisdictional limitations facing Commonwealth parliamentary committees, and the experience of the Productivity Commission.
South Australia's Murray-Darling Basin Royal Commission
3.4
In January 2018, the Murray-Darling Basin Royal Commission (Royal Commission) was established by the Governor of South Australia to inquire into the current state of implementation of the Basin Plan, whether the plan is likely to achieve the objects of the Water Act 2007 (Water Act), and whether the enforcement and compliance powers under the Water Act are adequate to prevent and address non-compliance with it and the Basin Plan, among other things.
3.5
When the Royal Commission was announced, the then Premier of South Australia advised that, according to legal advice, state-based royal commissions have capacity to compel evidence from other jurisdictions if the matters have a connection to South Australia. The then Commonwealth Assistant Water Resources Minister, Senator the Hon Anne Ruston, reportedly stated that the Commonwealth would not stand in the way of the Royal Commission and that neither should the governments of New South Wales [NSW] or Victoria. However, the Commonwealth and the MDBA subsequently refused the summons, with the Commonwealth Attorney-General, the Hon Christian Porter MP, explaining that this position maintained 'a long-standing legal precedence that state royal commissions…do not have jurisdiction to compel Commonwealth authorities'.
3.6
Consequently, the Royal Commission intended to compel Commonwealth witnesses and documents as part of its inquiry. In response, the Commonwealth and the MDBA sought an injunction from the High Court which would prevent current and former Commonwealth staff from being compelled to testify.
3.7
Due to the time needed for this litigation to be heard by the court and in the event of success, Commissioner Bret Walker SC sought additional time to hand down the Royal Commission's findings. The request was declined by the then Government of South Australia. As a result, the Royal Commission's summonses to Commonwealth entities were withdrawn and court proceedings were discontinued. The Royal Commission's final report was released on 31 January 2019.
3.8
At the committee's public hearing in November 2020, Senior Counsel assisting the Royal Commission, Mr Richard Beasley SC, explained that the Commonwealth had sought to argue that it could not provide witnesses or documents to the Royal Commission as this would be interfering with the Commonwealth Government's capacity to operate:
[T]here was…a technical dispute raised in the High Court to resist our summonses to produce material, based upon the nature of the power being exercised and the extent to which it was envisaged in both state legislation and the Commonwealth Service and Execution of Process Act and was affected by the Constitution…But, yes, you're right: in the final analysis, it did appear that the arguments were going to come down to whether or not there was some kind of excessive burden of a kind that would present an unconstitutional impediment to the exercise of governmental power at the Commonwealth level if they had to produce some documents to a state royal commission. I've tried to express that objectively, but the senators can take it that I myself regard that as a fairly astounding argument of a self-defeating kind by Commonwealth public servants, who I know can chew gum and walk in a straight line at the same time.
3.9
According to evidence from Mr Bret Walker SC, while the MDBA were uncooperative, this did not overly affect the Royal Commission's final analysis as South Australian authorities were cooperative and the Royal Commission was also able to use Freedom of Information (FOI) and Senate production of documents processes to obtain necessary information. However, Mr Beasley advised that the non-cooperation of the Commonwealth impacted the ability of the Royal Commission to put evidence received to relevant Commonwealth witnesses and receive their sworn evidence on the matters.
3.10
Mr Beasley was critical of the Commonwealth's approach to 'cooperative federalism', telling the committee that:
[I]f you put aside the legal issues, I think there's something for everyone to consider about the Commonwealth's approach. The Basin Plan involved four states, the ACT and the Commonwealth. Let's leave South Australia aside. If any one of those parties to that agreement—let's say it's Queensland or NSW—say, 'Something has gone wrong with the plan and we've got evidence about it,' it doesn't say much for cooperative federalism if the Commonwealth's attitude is, 'Well, we're not going to [inaudible]. See you in court.' Leaving aside whatever the legal arguments are, that's a pretty terrible approach to cooperative federalism in relation to an intergovernmental agreement.
3.11
Mr Beasley drew attention to the findings of the Royal Commission and emphasised that it is now the role of parliaments to act on those issues which were identified:
In relation to the sort of unlawfulness Walker found, I don't think that's really a matter for a cop on the beat. I think there is a cop on the beat. I view it as parliament. Everyone in parliament has a role to play in relation to Mr Walker's findings.
Australian Competition and Consumer Commission water markets inquiry
3.12
Approximately one month after the establishment of this committee, the ACCC commenced its inquiry into Murray-Darling Basin water markets. Of relevance to this committee is that the ACCC's efforts to gather and analyse trading data and other information to assess the impacts of market conduct were, according to the ACCC, made challenging by the information arrangements of basin governments. Additionally, while the ACCC was able to scrutinise market activity using its compulsory powers, this provided only a snapshot of a given period of time. Data limitations and the passage of time also meant it was not possible for the ACCC to investigate certain allegations of misconduct about market participants that it had received.
3.13
At a public hearing, Mr Mick Keogh, Deputy Chair, ACCC, explained some of the difficulties that the ACCC faced in conducting its inquiry:
[T]he water markets that operate in the basin, particularly in the southern basin, are extraordinarily complex, and the data and information available about what is happening in these markets is very difficult to access and to obtain a comprehensive picture from. We sourced around eight million transaction records of various different types, extending over the period from 2012 to 2019. What it highlighted to us was the very fragmented and inconsistent nature of the information that is available about what is happening in water markets, particularly in the southern connected basin but also over the basin more generally…a lot of the discussion in the lead-up to our inquiry was driven by heightened concerns about the behaviour of brokers or intermediaries in the markets and also investors in the market who don't own land or use that water on land but are predominantly involved in trading water…to get to the absolute truth in terms of the behaviour of those participants and what's happening in the markets requires a good information source to start with…in the absence of that good information base, understanding what has been happening in the market over the period we were required to investigate is quite difficult...while our conclusions generally were that we didn't find behaviour in the market that would amount to price manipulation, insider trading, collusion, the abuse of market power or unusual transactions, we necessarily qualified that by just pointing out how difficult it was to put together a comprehensive database of transactions and therefore get to the bottom of what's been happening.
3.14
Mr Keogh advised that an absence of quality information is impeding the introduction of more robust regulation:
[B]ringing in any form of increased regulatory measures around activities and trading in the basin is also not feasible in the absence of a good, robust, and timely flow of information in relation to the transactions that are occurring. I suppose in some respects we summarise it in the phrase 'it's not possible to regulate what's not recorded'…[it] was a very onerous task to put the data together in a fashion that actually made meaningful sense…just sifting through the enormous mass of data to get to a reasonable level of confidence about what could be observed was a very big effort. That's why a lot of the focus of our recommendations was on bringing some rationalisation to that; therefore enabling better scrutiny of what's happening in these markets.
3.15
The ACCC released a final report on 26 March 2021, in which it recommended comprehensive and immediate reform of basin water markets and mapped out a three-phase reform pathway. Of particular interest to this committee is that the ACCC recommended:
that new centralised basin-wide legislation be introduced to regulate conduct of market participants and for this to be enforced by a new Water Markets Agency;
upgrading states' trading systems to provide consistency and interoperability across jurisdictions;
improving states' existing information and centralising water market information;
implementing consistent service standards for trade approval authorities across jurisdictions;
updating carryover rules to account for evaporation losses from storing water in a dam for longer periods;
harmonising the operation of rules governing intervalley trade and trade through the Barmah Choke;
improving the transparency of conveyance losses and other delivery impacts;
consistent processes for reviewing water trading rules;
preventing water users being able to go into negative balances by extracting more water than is available in their account;
that MINCO [the Murray–Darling Basin Ministerial Council] and the BOC [Basin Officials Committee] publish procedural documents to improve the transparency of roles, functions, and priorities of its intergovernmental committees;
improving linkages between water modelling across the basin;
strengthening metering and monitoring across the basin;
better integration of environmental watering arrangements, trading arrangements, and market design; and
developing an education program.
3.16
In discussing with this committee the recommended reform pathway,
Mr Keogh observed that implementing such reforms was made more challenging because of the involvement of multiple jurisdictions. Even where there was agreement at the Ministerial Council level on a particular reform, there can be:
…considerable differences between the various jurisdictions on both the timing and the nature of the implementation of those decisions. Even getting commonality around timing and the specifics of some of those decisions has proved problematic. So it's certainly a considerable effort required to get some of these changes in place through this federated system.
Limitations of parliamentary committees
3.17
The ability of parliamentary committees to effectively scrutinise states' implementation of the Basin Plan is somewhat impeded by its multijurisdictional nature. The power of federal parliamentary committees to conduct inquiries and compel the attendance of witnesses, the giving of evidence, and the production of documents is conferred by section 49 of the Constitution. However, there is an implicit limitation on this power in that committees may not summon witnesses who are members of other houses in either federal or state legislatures. This limitation may also extend to officers of state and territory governments, the rationale being that the Commonwealth should not impede the essential functioning of the states. However, these questions have not been adjudicated.
3.18
During this inquiry (into multijurisdictional inefficiencies and complications), the committee invited written and verbal evidence from all basin states to inform its understanding of current arrangements and where improvements could be identified. The committee received written evidence from all states except for the Australian Capital Territory. The committee's invitation to appear in person and provide evidence at a public hearing was declined by all states except for the Governments of NSW and Victoria, who both provided verbal testimony at separate hearings. Commonwealth agencies invited to participate in the inquiry were also cooperative, with some providing written submissions and/or verbal testimony, some on multiple occasions.
3.19
Being prevented from examining in further detail, and in person with some of the states, some of the inconsistencies and inefficiencies of varying approaches to plan implementation did not overly impede the inquiry. However, it meant that some states were deprived of the opportunity to publicly allay stakeholder concerns that had been raised with the committee and the committee was denied the opportunity to better understand where multijurisdictional efficiencies could be gained.
Initial state opposition to water-sharing review
3.20
As mentioned earlier, following a 'Can the Plan' demonstration at Parliament House, the former Federal Water Minister requested that the Interim Inspector-General of Murray-Darling Basin Water Resources, Mr Mick Keelty AO, review the water sharing arrangements between states. However, water ministers from Victoria and South Australia were concerned at the extent of the review and indicated that they would not participate, while their NSW counterpart welcomed a review into state's water allocations. The Victorian Water Minister advised that the state would not support the office of the Inspector-General having the power to change water-sharing rules.
3.21
The then Commonwealth Water Minister, the Hon David Littleproud MP, confirmed the investigation would commence immediately and requested that states assist the investigation. At the time, Minister Littleproud acknowledged states' sovereign right not to cooperate in the review, but indicated that the review would continue nonetheless. Mr Keelty explained that state opposition would make his work more difficult and that he had reached out to the states and their departments, but that in the event that he could not establish the facts due to non-cooperation, he would at least shine a light on that as an issue. Despite initial opposition, the committee heard from Mr Keelty at the conclusion of his review that, despite his having no legislative power or special arrangements with states, states had been cooperative during his inquiry.
Experience of the Productivity Commission
3.22
The Productivity Commission is responsible for reviewing the Basin Plan, and Australian water reform more broadly. Pursuant to the Water Act, the Productivity Commission assesses the effectiveness of the implementation of the Basin Plan every five years. The Productivity Commission also assesses progress towards achieving the objectives of the National Water Initiative every three years. The Chair of the Productivity Commission, Mr Michael Brennan, explained to the committee that the Productivity Commission had inherited these functions from the former National Water Commission essentially unchanged.
3.23
The Productivity Commission has powers under sections 48 and 49 of its legislation to request documents and witnesses to attend its hearings as part of its inquiries, although 'it remains untested how they would apply to state government officials'.
3.24
According to the Productivity Commission, it generally did not encounter issues when conducting multijurisdictional inquiries:
Most of our work would have some Commonwealth-state dimension…Generally, that isn't a big problem. It does mean that we need a degree of buy-in from all relevant jurisdictions; but, of course, you need that from stakeholders anyway. Whether it's an inquiry into veterans' affairs, as we've done, or mental health, you need a strong degree of buy-in from relevant stakeholders in order to get information, data and stakeholder views. It can sometimes be a challenge getting strong cooperation from state and territory jurisdictions and even Commonwealth departments. My sense is that in this particular instance it has tended not to be a particular constraint, largely because of the significance of the issue, the fact that it's a small number of jurisdictions, there being a fair degree of high level focus and the mandate for us being pretty clear because it's set out in the act. It's a well-understood process that occurs periodically, although it was previously done by the National Water Commission. For practical purposes, I wouldn't identify the fact that it's multijurisdictional as being a particularly binding constraint on our ability to undertake the inquiry.
3.25
The Productivity Commission advised the committee that while to some extent constitutional arrangements were outside of its remit, its most recent Basin Plan review had considered whether collaboration and coordination processes between governments were effective. The Commission did not, in that review, find anything particularly inefficient with current multijurisdictional arrangements.
3.26
The committee heard that all jurisdictions and agencies were generally cooperative with the Productivity Commission review:
[The Productivity Commission] had good access to the jurisdictions, very good access to the MDBA and good access to the Commonwealth department. We had lots of meetings. We put in huge numbers of requests. Generally speaking, that information was forthcoming, and some of it was confidential, and they were prepared to give it to us…some things were definitely provided with confidentiality…the commission quite frequently has access to confidential arrangements and there is a known protocol and agreement by which the information is stored by us and is referred to by us…
3.27
The multijurisdictional nature of the basin's governance arrangements can make it difficult to resource scrutiny agencies which can potentially undermine their ability to effectively carry out their roles. The Productivity Commission acknowledged that aspects of developing and maintaining in-house water expertise can be a challenge:
This is an ongoing issue for us as to how we resource an ongoing function. Many of our inquiries come to us from government giving us terms of reference that are effectively standalone terms of reference and we face that challenge of getting up to speed on a, if you like, foreign topic quickly. Some things are not in that category, because we have these statutory functions and so a standing capability. Post the abolition of the NWC and us taking on those functions, it has been a bit of a journey for us to develop a strong, ongoing in-house capability on water. So I would describe it, frankly, as a bit of a hybrid. I think we've got some people who have got some strong water expertise. They can be difficult to hold on to because there are other prospective employers around the place. Then we take some of our generalist public policy economists and get them to apply themselves to water for a period. We just try to make sure, ideally, that they've got plenty of time to get across the issue. So, where there are gaps in the calendar, for example in 2019 when we didn't have either an NWI review or a Murray-Darling Basin review, we undertook a research project in respect of integrated water cycle management—not a Murray-Darling Basin issue but a water policy issue—to try to maintain a bit of continuity around that in-house capability. It is a bit of a journey and it's a balancing act for us because we've got some good ongoing water expertise, but a lot of it is a generalist capability where we try to get people up to speed quite quickly.
3.28
In response to the committee's questions regarding securing staff with multijurisdictional expertise, Dr Doolan advised that it is relatively rare to secure staff with deep and broad expertise across multijurisdictional water policy, although there are some people with previous exposure in water reform. That said, Dr Doolan noted that even experienced staff still need to expand their understanding to keep up-to-date:
It's relatively rare, but there are several people, particularly in areas that have worked in the old commission days, if you like. They might come from a jurisdiction but they've had exposure to other jurisdictions through those joint government processes or they've worked on national water reform, where, again, you're exposed to what happens in each of the jurisdictions. But then you've still got to go deeper, so you've still got to expand your understanding to actually understand what the states are showing and giving you.
3.29
Of the 38 recommendations made by the Productivity Commission in its 2018 review into the implementation of the Basin Plan, 23 were agreed by basin governments, five agreed in principle, five agreed in part, one was not agreed, and four were to be further considered. Dr Doolan advised that the Productivity Commission was satisfied with the response:
[W]e were pretty happy with the response that we got from jurisdictions and the Commonwealth agencies…this function was agreed by COAG. There would be a regular five-year assessment. States know that. They signed up to it. It moved from the NWC to us. I think they saw it as an opportunity to help with improvement as well. We made some challenging recommendations, but the vast majority were about continuous improvement. So we did not experience that pushback [that frustrated the Royal Commission].
Calls to reinstate the National Water Commission
3.30
During its inquiry, the committee received numerous suggestions for the abolished National Water Commission (NWC) or equivalent to be reinstated. The committee sought to understand which functions of the NWC, according to these inquiry participants, needed to be reinstated or which functions are missing from the governance framework, and why the Productivity Commission was not considered to be adequately filling this role.
3.31
In response, the Lifeblood Alliance argued that the NWC was not restricted by terms of reference which focus on the Basin Plan implementation like the Productivity Commission, meaning it was able to provide innovative recommendations and leadership on water reform. The strength of the NWC, the Lifeblood Alliance argued, was that it was:
…an independent body with real water expertise. The Productivity Commission is doing a wonderful job and we've got great respect for the report that it's making on the implementation of the plan and on the National Water Initiative. It's able to provide recommendations, but it's not able to do the research and provide the leadership that's required to actually push water reform forward. The NWC started the ball rolling on engagement with the First Nations and on cultural flows and a lot of other aspects which nobody else had really thought about, and they were able to do that in ways which the Productivity Commission can't, with all respect to them…The Productivity Commission makes lots of recommendations on how the plan is progressing and how it's being implemented, but their terms of reference restrict them to within the plan, whereas others can think of fresh avenues and different ways of doing things, which the NWC was able to do. The state governments and the Basin Officials Committee receive a lot of advice from their departments, but they don't necessarily get independent advice from outside their own departments, which is what the NWC was able to provide.
3.32
Other inquiry participants supported the reinstatement of the NWC or equivalent, including Dr Anne Jensen, Mr John Pettigrew, Chair, Goulburn Valley Environment Group, and Mr Bob Newman.
3.33
Mr Pettigrew argued that the NWC was able to monitor the progress being made by states and had the ability to recommend to basin governments, both state and federal, that funding be withheld where appropriate.
Committee view and recommendations
3.34
The committee acknowledges the complexities of Basin Plan scrutiny processes within a multijurisdictional framework, and notes that evidence indicates that the Productivity Commission, in carrying out its scrutiny role across multiple jurisdictions, is largely working well. The evidence from the Productivity Commission itself indicated that it has not encountered any jurisdictional barriers that meaningfully impede its work in the basin.
Next chapter
3.35
The following chapter examines issues relating to transparency.