Politics

A good start, but water charge plan flawed

Labour’s water charge plan isn’t perfect, say commentators, but it’s an important step down the road to equitable use of a public asset. Dave Hansford reports.

Last week, Labour announced it would start charging “large” water users for each drop. It joined a long queue: practically every other party has already called for levies on industrial water use, with the exception of National, which is awaiting a report from a technical advisory group on this and other water issues.

Labour’s plan is a pencil sketch for now: Irrigation NZ CEO Andrew Curtis complained that all his industry had to go on was “a one-page press release”. Water spokesman David Parker has proposed a charge of 2 cents for each 1000 litres farmers use, scotching doomsday prophecies from the agriculture and horticulture sectors of a $600 billion hit, and $18 cabbages. He says the annual bill would be under $500 million a year. In which case, the net probably hasn’t been cast wide enough, but we can’t be sure, because Labour has yet to say how “large” a water user has to be before they will incur the tax.

A herd of elephants in the briefing room is also obscuring critical equity problems: it’s been pointed out that very large commercial water users, as long as they’re hooked up to a municipal scheme, appear to be exempt. But Labour, like everyone else, has heard the rumble of public exasperation with what is, on the face of it, a rort.

The terms of its resource consents allow Oravida to take up to 400,000 litres of water a day from the Otakiri Aquifer near Whakatane. It’s paid just over $1500 for those consents, which are good until renewal in 2026. The company sends around 146 million litres of water to China each year, where it sells for NZ$1.60 a litre, which means that, for an annual monitoring cost of around $500, the company makes a return of $233 million a year.

It’s just one example of the apparent inequity that sparked a petition to Parliament in March calling for a moratorium on water exports, and it reflects, more broadly, the vexed question of how to allocate natural resources fairly. Many see resource rents as the answer. In a nutshell, a resource rental is what’s left over from a sale after production costs and reasonable returns have been deducted.

We already charge oil and mineral companies modest rentals, but the Government, leery of Treaty entanglements, has shied away from a levy on water. The idea is that the rental charge should cover any costs passed on to the public from a private operation, such as the expense of cleaning up waterways polluted by industry. “If you’re going to tax something, tax bad, rather than good. Let’s tax resource use, rather than income,” says Gary Taylor, Executive Director of the Environmental Defence Society. “I think that’s the way that economic theory is taking us. It’s been pretty widely adopted in OECD countries, but it hasn’t been properly deployed here.”

“If you’ve got a business model that requires a zero-priced input, and relies on passing on externalities like waste to the rest of society, then you’ve done two things: you privatised that communal asset, and you’ve socialised the cost of outputs. That just doesn’t feel like a good business model.”

- Economist Peter Fraser

Resource pricing, says Taylor, “is a powerful tool, whether it’s an incentive for good behaviour, or a disincentive for bad”. Once a litre of water has a price on its head, he adds, a company is less likely to waste it or degrade it, “and if it creates a fund that regional councils can use to remediate polluted waterways, I think that would be a good thing.”

But economist Peter Fraser isn’t so sure. If rentals are about changing behaviour, he says, “there are better ways to do that, like the resource Management Act”.

The idea of putting the proceeds into a remediation fund is flawed. “If it’s sensible to spend $100m a year cleaning up rivers, we should be paying for that anyway, not just because we’ve put a royalty on water.” Instead, Fraser says he’d “chuck the revenue at the super fund, because this is about intergenerational equity – we don’t want to leave our kids shitty rivers. In terms of income, that’s what super fund is about, and I think that would be quite a neat closing of the circle.”

Water charges he says, are about social justice. “If you’ve got a business model that requires a zero-priced input, and relies on passing on externalities like waste to the rest of society, then you’ve done two things: you privatised that communal asset, and you’ve socialised the cost of outputs. That just doesn’t feel like a good business model.”

For now, Labour has singled out water bottlers and primary producers, but if the charge is to be truly equitable, says Fraser, “it should apply to everybody; residential and commercial, with no exemptions. The idea that a Coca-Cola bottler is exempt because it draws from a municipal supply — that’s just stupid.”

A sliding scale of charges is a mistake, too. “You can’t have multiple prices all over the place. Apply a single, low rate, like we did with GST.” Fraser says there are better ways to secure a premium on top-quality water: “Let’s imagine there’s an artesian spring of thousand-year-old water which you could sell for a gazillion dollars in Shanghai. In my view, you should tender the rights to extract that water. Make people bid for it. That way, you can still achieve the differentiation between water you just chuck on paddocks, versus the water you export.”

John Key famously insisted that nobody owns water, but as Fraser points out, “you can buy and sell water on Hydro Trader right now. It’s already been commodified on the grey market. We may not like it, but that’s the reality.” Labour’s proposal, he says, “needs development, but it’s a very big step in the right direction. At least we can now have a conversation; for the last nine years, under this government, we haven’t been able to have it”.

Gary Taylor agrees: “The environmental movement has consistently argued for a price on freshwater, partly because it will help direct water towards the most efficient use, and also, it’ll have a knock-on effect with respect to water quality. So from that point of view, I think it’s moving in the right direction."

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