The “Social and economic impacts of Basin Plan water recovery in Victoria 2022” report was produced for the Victorian State Government in 2022. We analysed the social and economic issues associated with water recovery for the environment in Victoria, under the Murray Darling Basin Plan. Our report provided a valuable evidence base to support robust decision-making on Basin Plan issues.
Our scope was to build on and update the analysis undertaken for our 2017 socio-economic assessment report. The report explains the impacts being felt by communities in Northern Victoria in the 2022 context of water recovery for the environment under the Basin Plan.
One (of the thirteen) chapters considers the possible future impacts of the Basin Plan. The intent of this analysis was not to undertake detailed economic modelling to estimate the impact of further buybacks. Rather, we provide an indication of what is ‘at risk’ — in terms of the value of economic production and employment that is currently supported by the volumes of entitlements that could be recovered if the Commonwealth use buybacks to complete Basin Plan targets, for example the additional 450 GL.
The report does not advocate for, or against, buybacks or alternative forms of water recovery.
It documents the financial costs and socio-economic issues around each water recovery approach. It does seek to put into context the socio-economic value of water for agriculture with the aim of making government cognisant of the consequences removing this water through buybacks could have, so this can be considered when making decisions about water recovery and the support that would be needed to mitigate these impacts.
Our report also brought significant new information to light, securing data from the Department of Climate Change, Energy, the Environment and Water (DCCEEW) regarding the type of infrastructure recovery (separating out on-farm and off-farm) that had previously not been released.
Our work also secured data from the Commonwealth Environmental Water Holder (CEWH) regarding their holdings and behaviour that had not been previously made available.
We note that the Murray-Darling Basin Authority (MDBA) commissioned a team from the University of Adelaide to conduct a literature review of 106 economic Murray-Darling Basin studies that are assessed and rated on a measure of ‘quality’ adapted from medical literature. This approach to assessment is not fit-for-purpose, for the range of studies considered.
Of the 65 studies that were deemed to relate to the influences of water recovery programs on economic outcomes (this report being one of them), 18 of the 28 applied studies are rated low-quality, with 10 of the 11 studies using descriptive statistics being rated low-quality. In fact, the review raises concerns with all the significant reviews in the area.
The University of Adelaide reports that “The bulk of the large-scale reviews to date (e.g., EBC et al., 2011 [appointed by MDBA to consider community impact]; RMCG, 2016; Sefton et al., 2020 [which was an independent panel appointed DCCEEW]; Productivity Commission, 2018; Wentworth Group of Concerned Scientists, 2017; KPMG, 2016; 2018; TC&A & Frontier Economics, 2017; Frontier Economics & TC&A, 2022) have not managed to identify a causal relationship between water recovery and economic outcomes.”
Furthermore, of the studies considered by the University of Adelaide team, many are not contemporary — suggesting that MDBA and DCCEEW need more evidence to support current policymaking.
At Frontier Economics, we peer-review every report with a robust methodology built over our 25 years of economic consulting experience. Academic standard-peer reviews are not practical or common-practice in real-world industry cases, and using this basis to question the quality is, in our opinion, incorrectly measured.
We invite any enquiries on this matter via contact@frontier-economics.com.au
We were recently asked by the Nature Conservation Council of NSW (NCC) to examine the financial and budgetary drivers behind the Victorian Government’s decision to accelerate the closure of its public native forest logging (NFL) business – and how comparable these drivers are in New South Wales and Tasmania.
While the native forest logging businesses in NSW (Forestry Corporation of NSW - FCNSW) and Tasmania (Sustainable Timber Tasmania - STT) have not reached the same level of operational crisis and loss of keystone customers as Victoria, they share the fact that they have been a financial drag on taxpayers over a very long period. FCNSW’s hardwood division has a long history of poor financial returns and lost $30 million in the last two years. STT has also incurred operating cash losses over long periods.
Our previous analysis “Comparing the value of alternative uses of native forests in Southern NSW” also shows that this unprofitable business also comes at a significant opportunity cost to the community. This is in terms of the loss of alternative higher valued uses of the standing forest, and the loss of environmental services.
The poor financial position and budgetary burden posed by the publicly-owned NFL business is intensifying. Factors include the reducing log supply, increasing costs of production, and the increasing competition from alternative wood products that have dramatically reduced demand, including for structural timber from native forests.
It is time to stem the cost to the community posed by the industry and to plan for an orderly exit from NFL.
Additionally, the facts show that this would not materially disrupt downstream markets or increase illegally logged supply.
Wood production by the NFL industry has already fallen by 60% since the early 2000s, so it is possible to see what the likely impacts will be. The data suggests the markets for sawn wood products have substantially switched to softwood timber and wood-based panels. The decline in Australian native woodchip supply has largely been filled with plantation woodchips, particularly from Vietnam.
View the full report commissioned by Nature Conservation Council of New South Wales below.
Whilst road pricing has been a hot topic in recent months in various states across Australia, the evolution of charging commuters for roads across Australia’s has been a long series of developments. With many challenges to defining how to charge commuters – including competing priorities and governance, and new technology such as EV’s, we unpack this topic below.
Road pricing has made its way into the news recently for a number of different reasons.
Firstly, in 2021 the Victorian government introduced the Zero and Low Emission Vehicle (ZLEV) charge which levied electrical vehicle owners 2.8c for each kilometre they travelled. The intent was to charge EV users for the costs they impose on Victoria’s road network.
However, in October the High Court of Australia ruled the charge invalid, as it amounted to an excise duty, which under the Constitution, can only be levied by the Commonwealth.
Secondly, in the last year the NSW Government also announced the Independent Toll Review. This has come about because of emerging public concerns about the affordability of current tolls on Sydney motorways, particularly given the rising cost of living. Concerns have been accentuated by the inequities in tolling, whereby some motorists on their daily commute face quite significant charges, while other motorists in Sydney, pay very little.
The Independent Review has released a discussion paper which considers the efficiency and fairness of existing tolling arrangements that are set out in PPP contracts with road concessionaires.
The challenges posed by toll roads are merely a subset of the broader issues in road user charging. Whilst governments think that users should pay more directly for roads, developing a comprehensive set of road prices that applies across Australia’s road network is challenging.
Frontier Economics’ has been providing economic consulting advice in the transport sector – and on the development of road user charges – for many years. Here, we unpack the challenges of road pricing and discuss a possible path forward.
Our Local, State and Federal governments are entering into a challenging space when it comes to the pricing roads. There are multiple reasons why pricing road use is challenging:
Firstly, there are multiple objectives to consider when pricing roads which are sometimes conflicting. Road charges can:
The second reason is that we have Local, State and Federal Government roads. This creates challenges because you immediately have multiple governments involved, and we have motorists travelling, potentially in one trip, on multiple roads that are owned by different governments. The charging arrangements for that entire network therefore becomes far more complicated.
The final layer to this is that is that different governments have different powers in respect to vehicles, vehicle use and charging. The Federal Government has responsibility for the importation and design of new vehicles, and the power to levy the fuel excise, which is often argued to be the main mechanism for implicitly funding the road networks. The State Governments are far more confined in their ability to levy state-based road charges, however, they are in charge of things like registration. So, this limits the ability for any one government to create a comprehensive charging structure on its own.
It’s necessary for all governments to consider a reformed approach to road pricing now, because of the emergence of Electric Vehicles (EVs) – who don’t pay the fuel excise. And currently the main mechanism used to implicitly fund road development is this fuel excise. This funding is expected reduce over time, as more motorists take up EVs. Essentially, motorists will be using less fuel, and as we use less fuel, this funding source will disappear.
The time to deal with this is now. Solving this problem means moving away from current arrangements which is challenging. States, such as Victoria, have tried to go it alone by implementing road use charges for EV. But this approach has been struck down in the High Court Challenge. So, you can see states acting on their own isn’t really a great option.
The first step is to acknowledge that road pricing is an issue across governments and one that might benefit from intergovernmental co-operation. An intergovernmental agreement could be developed, that sets out:
Some pricing improvements for heavy vehicles have already been achieved. It’s been a slow process with incremental improvements but there is no reason why that process, which we have been heavily involved for the last 15 years with can’t be expanded.
Given the outcomes of the High Court Case, governments need to work together on this emerging issue, and a better, intergovernmental, solution is required if we are to create road charges that are more efficient and fair for all motorists across Australia.
