Labour could have knocked the water debate out of the park; But the economics of its royalties policy just don't work; Let's hope they get some nationalistic headlines out of it before questions are asked

By Alex Tarrant

Labour this election had the opportunity to knock the water pricing debate out of the park. Jacinda Ardern’s announcement Wednesday was instead a nod to politics over policy.

On the face it, the headline announcement that all commercial water users would be charged based on usage was a welcome addition to the water allocation and pricing debate in New Zealand this year.

But going beneath the surface throws up more questions than answers. These mainly stem from the policy’s central theme of different royalty rates applying to different water users, and depending on the quality of water used.

I made my views clear on this issue back in March. Let’s have a proper water pricing debate that encompasses all water use. We also need clarification on who owns water before we go about charging for it.

Labour looks like it doesn’t want to get too deep into the ownership discussion ahead of the election. On one hand, the party says it will work to resolve Treaty of Waitangi claims on water. On the other, it maintains that ‘we all own it’.

This indicates the lesson Labour learnt from the foreshore and seabed issue was, ‘let’s say we all own it but that Maori also have claim to it,’ and hope no one questions that before election day.

The announcement is a nod to politics over policy. Ok, let’s not be too surprised by that – we’re in an election campaign. Some credit should be given to Labour for at least talking about the issue, while National’s eggs are all sitting in the basket of the government’s Water Allocation Advisory Group, which won’t be reporting back until the end of the year.

But in effort to garner headlines focussed primarily on those nasty water bottlers that then send the stuff to China, Labour’s policy already runs the risk of mispricing water, meaning any allocation market might not run properly.

Different royalty rates will apply to different water consumers, and in different regions. Ardern tried to smooth this over by saying the government’s current commodities royalty regime already prices a natural resource like gold different to gravel.

Keen readers will notice that the two resources used in the example above are different to each other.

The policy document implies a greater per litre charge will apply to water bottlers than farmers. The basic economics of this imply water use would then shift from bottlers to farmers. More water for farming would imply more farming. Labour doesn’t want this, so why do the economics of the policy encourage this?

Of course, quantities that are allocated currently for bottling and farming are vastly different. Still, the economics behind the policy don’t seem to have been thought through that well if Labour’s intention was to have a comprehensive debate about the issue.

The policy document indicates it will also be the quality of water that counts. For example, water from a spring in the middle of nowhere that can be branded on a bottle as “pristine” should be charged at a different rate to water that is found in a river running through dairy country.

Well, good luck imposing water quality standard charging as well as volumetric charging at the end of all those pipes. Such a move could also encourage users such as bottlers and farmers to use the least clean alternative they can find, but which would ‘just’ be clean enough.

Try explaining that in Fonterra’s branding story or on the sides of those exported bottles. “Yeah the government’s water pricing regime encourages us to use the least clean ‘good enough’ alternative possible and actually means there’s not much of an incentive to change.”

Finally, the policy indicates households and councils won’t be subject to royalties for water use. I know this might fall into the nit-picking basket, but creating an incentive for regional councils to enter the water bottling/exporting or farming industries isn’t exactly what the economics of the policy should be encouraging.

This is definitely one for the basket of: ‘nice try, and let’s hope it gets a lot of heart-tugging nationalistic headlines and cements the urban vote before anyone starts asking detailed questions about it.’

Is it really that hard to just have a grown-up, comprehensive water allocation and pricing debate in this country?