At some point someone should write something called “In praise of the Productivity Commission …”  Through thick and thin, it has produced consistently high-quality, independent policy analysis.  You can tell how good it is because hardly anyone ever likes what it says — not governments, not oppositions, not interest groups, not businesses, not unions.  The PC is the scourge of rentseekers and special interests, whose ranks have swollen dramatically over the past decade.

Its report on the government’s actions in the Murray-Darling Basin yesterday is a fine example.  There is no one who will be happy with all the PC’s conclusions — and certainly not the government or the Opposition.

The report strongly reflects the PC’s views outlined in its December draft report. That report criticised the high level of infrastructure investment proposed for the MDB — investment aimed at improving the effectiveness of irrigation, with the environment and irrigators sharing in the water gained from reducing evaporation.  The final report states bluntly that irrigation infrastructure is not a cost-effective way of saving water compared to buying the stuff.  The draft also suggested the government be smarter and more flexible about how it purchased water.  The final report goes further and suggests the government substantially restructure its tendering system for purchasing water, aiming at the purchase of a wide variety of entitlements.

And the commission reiterates its point from December that the buy-back process is being conducted before a system-wide study of environmental needs has been completed, and in the absence of a clear understanding of the competing social values of environmental flows and irrigation.  We’re buying water for the environment before we know how much we need for it, the commission says.

Above all, the commission joins the National Water Commission in demanding that governments remove impediments to the emerging water market.  An efficient water market — unconstrained by absurdities like the Victorian and NSW trading caps — is the key to improve the efficiency of water use in the MDB and to enable the efficient allocation of environmental flows.  A functional market will see more productive use of water and a more efficient government buyback process based on clearer price signals.

The government has committed over $3 billion to irrigation infrastructure, and the coalition’s primary point of differentiation on the issue has been its complaint that the rollout of infrastructure investment has been too slow (it has fallen victim to bureaucratic chain-dragging at state level, to the chagrin of Penny Wong).  The PC’s attack on infrastructure investment therefore won’t be welcomed by either side.  It didn’t go down well with irrigators either — Andrew Gregson of the NSW Irrigators’ Council — one of the most refreshingly straight-talking peak body representatives you’ll ever meet — welcomed the report but professed disappointment that the PC “didn’t take a broader view of productive efficiency” of irrigation infrastructure.

Bit by bit, the commission, along with the National Water Commission, is trying to push the debate on the MDB away from the environment versus irrigation dichotomy and closer to where it should be — about how to get an efficient water market operating as quickly as possible.  There’s still a lot of work to be done, mainly by the states, to get their act together on that front — indeed, there’s a sense that state governments still don’t really believe that there should be a water market of any kind outside their own tightly-regulated water authorities.

Once there’s an efficiently operating water market, however, government intervention to establish greater environmental flows can be carried out far more efficiently.  In such a market, that will drive irrigation infrastructure investment, not government handouts.

Don’t hold your breath waiting for either the government or the Opposition to agree though.