Inside a looming election debate on water levies

With water shaping up as a major election issue, Baz Macdonald looks at the calls for levies on commercial water use - and the potential effects on industries and the cost of living.

At their campaign launch on Sunday, the Greens confirmed water will be a key election issue by proposing a 10c/litre levy on water bottling, and calling out National for what they say is a weak stance on the issue.

The question of water pricing has risen to the top of the agenda this year, but the debate has been bubbling beneath the surface since 2011 when Labour proposed a resource rental on water for irrigation as part of their election policy.

Despite some confusion at the Federated Farmers conference last week, Labour leader Andrew Little confirmed it remains part of their election platform.

In the past nine years in Government, National’s stance has been that no one owns water.

However, growing public pressure led to Prime Minister Bill English writing to the Ministry for the Environment's water allocation technical advisory group in March asking for an investigation of the issues around exporting water.

The report is expected at the end of the year, which Little said is the Government's way of avoiding dealing with the issue before the election.

Why charge for water?

In her investigation of New Zealand water exports this year, Newsroom’s Eloise Gibson discovered that, despite National’s stance that nobody owns water, it has become a very lucrative business for some.

An examination of the past ten sales of consultancy Hydro Traders showed it had enabled landowners from the Selwyn-Waimakiriri and Selwyn-Rakaia areas to sell the rights to extract 50 million to 500 million litres of water a year for prices of roughly $50,000 to $500,000.

These profits are going to farmers and businesses who, having gained water permits from their council, are on-selling their surplus to water exporters.

The Greens say their proposed levies would ensure that communities profit from water as well as individuals and businesses.

Supporters of water pricing say levies would also have positive environmental effects, primarily by cutting down on water waste.

Greens co-leader James Shaw said commercial water consumption was profligate, even in areas where water was scarce, such as Canterbury.

But Irrigation NZ CEO Andrew Curtis said if the purpose of the levy was to resolve environmental problems, then having the Government collect money to fix them was an inefficient method.

“You’re disempowering communities by trying to centralise stuff like this. You’re better off identifying the specific problems and then enabling the community to spend its money to address that,” Curtis said.

But what about iwi?

English was particularly wary of the water ownership topic when he kicked it into the touch of the technical advisory group, pointing to the negotiations that arose when the Government sold down its ownership in the hydro-electric power companies.

He said in March the group would look at who would charge for water, what they could charge and whether it could be done without establishing who owned the water. See more here in Bernard Hickey's piece in March.

"We're not saying it's too hard. We're just saying it's hard. Because it's a big shift for New Zealand, to say we're actually going to put a price on water ... because water's been free and hasn't been owned by anybody."

If the politics of virtually free water for exporters is hard, the blow-back on any government that tries to establish water ownership and starts applying prices would be substantial.

Once the principle of water ownership is established, the debate jumps quickly to iwi ownership and Treaty rights, and whether owners of water permits such as irrigating dairy farmers, vineyards and orchards have to pay.

"It's bound to raise other issues," English said in March of the group's work.

"The Māori rights and interests would be part of the discussion."

English said it had taken the Government seven years to announce a framework for water quality and the Government had been in discussions with the iwi leaders forum for most of that time in.

"It's always five times more complicated than you thought and there is always a wide diversity of interests in what happens. That's why it took seven years to get to be able to announce a quality framework, so you wouldn't want to underestimate the many issues that will arise in considering this particular issue," he said.

"There's been five or six years of discussion with various Māori interests related to Tribunal claims going right back to the sale of the electricity companies when there was a High Court case about that, so it's been an ongoing discussion about Māori rights and interests and what those amount to."

So who supports levies?

There are currently two different water levies being proposed; a royalty on bottled water and another on water for commercial use.

On both sides of the aisle, almost every party has shown some degree of support for levies on bottled water.

In March, Andrew Little confirmed Labour’s intention to place a levy on exported water, but said they had not yet decided what that might be.

The Greens proposed a 10c/litre royalty on bottled water, but later clarified to Newsroom that this price would be an interim measure until a more comprehensive pricing plan was put together.

NZ First, United Future and Act have all indicated that a levy on bottled water is something that should be looked into.

In a statement, NZ First leader Winston Peters said he could see bottle water royalties generating $20 million in revenue.

Even Environment Minister Nick Smith has said the Government was open to the idea of charging bottled water companies.

On the other hand, levies on commercial uses of water are not so uniform in approach or widely supported.

Labour has said that commercial water levies are part of their focus on water quality and that they intend to charge farmers and businesses who use large quantities of public water - namely irrigation.

Labour’s water spokesperson David Parker clarified they would work to make sure these levies wouldn’t put up the price of farming. He said there would be a variable price model in which “the amount of royalty would be higher for pristine water from the ground”.

Labour intends to detail its plans for commercial water royalties some time in August.

The Greens have proposed a much broader commercial water levy which will be charged to any business using large quantities of public water. This will presumably include all primary industries, including agriculture, horticultural, dairy and meat.

Shaw said the proposal has no set price for industries outside of bottled water. Their intention is to set up a working group to create a variable price structure which takes into account the industry, region and time of year.

The broad strokes of the Greens' proposal begs the question of what industries might be affected, including hydro-electric power dams - as has been pointed out by the Prime Minister.

However, Shaw said English's suggestion that hydro schemes might have to pay under the Greens' plan was incorrect as power companies did not remove water from the system.

Who would receive the revenue from these levies?

In general, all parties propose revenue from water royalties be put back into the community in some way.

NZ First offered that “25 percent to 50 percent of royalties would go back to those regions for local infrastructure and for regional economic development and job creation”, with the remainder presumably taken by the Government.

The Opportunities Party wants to see revenue allocated into "nature improvement funds", which regional councils could invest in environmental projects.

Both Labour and the Greens propose the revenue be split between the water sources's local council and iwi.

As well as revenue, Shaw said the Greens hoped to resolve issues around “rights and responsibilities [around water] that this Government has avoided talking about for the past nine years”.

“You’ve had a historical situation in New Zealand where the first person who gets to the resource gets to claim it and then use it.

“You’ve got these proxy ownership rights that have built up over time and that is where you’ve got some of these over-allocation issues.

“In order to move towards a more rational and fair approach to water, you have to unwind a lot of that historical stuff,” Shaw said.

Would charging for water work?

Without a detailed pricing scheme, industry representatives say it is hard to tell how water pricing would work, but that has not stopped them pointing out potential pitfalls.

Irrigation NZ's CEO Curtis is sceptical of how the pricing structure would work, both in terms of its financial effect on primary industries and the viability of a variable price structure.

The organisation has calculated that 6.25 billion cubic metres of water is consented for irrigation in New Zealand.

“Based on 10 cents per litre as a starting price for a discussion, this equates to $625 billion. So, it’s going to be quite a long consultation process.”

Even taking the variable price model into consideration, Curtis said the sheer number of variables involved made the Green’s proposal unrealistic.

Farmers throughout New Zealand used public water in a plethora of ways, from creating dams and reservoirs to using modern mechanisation to pull, store and use water efficiently, he said.

All these methods use water in very different ways and Curtis said he wondered how the proposal could possibly take all those factors into account.

Would water be a fixed price?

Irrigation NZ presented the Greens with a paper on these variables, and Curtis noted that since then the party had moved away from a fixed price model.

Beyond the financial implications, Curtis said there was an aspect of fairness to be considered. Farmers already pay for the water through rates and taxes, he said.

Curtis also pointed out that because irrigated land is worth more than non-irrigated land, these farmers pay higher rates, which could be considered in the cost of their extra water consumption.

Who would pay in the end?

As with any business, extra costs have to be covered somehow. Horticulture NZ CEO Mike Chapman said it was likely consumers would end up footing the bill.

“Cost increases like this end up being passed down the supply chain," Chapman said.

“Anything that puts a charge on the production of fruit and vegetables is a cost that will eventually flow through to consumers.”

However, this may differ depending on the industry. Meat Industry Association CEO Tim Ritchie said that domestically their product was already priced as stringently as possible, meaning it was the farmers in the meat industry who would likely wear the costs of a water levy.

Ritchie questioned how likely it was that a water levy would make commercial users more efficient with their water use, as competition was already driving the desire for efficiency.

“There is a natural commercial incentive to be more efficient in the use of resources. You don’t need a tax or a levy to enforce that.

“Water, like energy, is something that the industry is all the time looking to be more efficient and more productive with,” Ritchie said.

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