Canberrans are the highest users of water among the temperate capitals in Australia. Our water is the among the costliest to supply and yet is charged at the cheapest rate.
In fact, those three elements are closely linked.
We use a lot of water because it is cheap. It is expensive to supply because the city is spread out. Because the city is so spread out we have big gardens, so we use a lot of water.
If we continue to use water a present rates an expensive new dam will have to be built by 2002, given population trends. Something has got to give.
The ACTEW has put out an issues paper prepared by the CSIRO asking Canberrans for their comments on what is to be done.
Incidentally, it is quite possible that the ACTEW is attacking the problem from the wrong angle. It is asking how we can get more people to consume less water. Perhaps it should ask how we can get fewer people, which would then result in less water being consumed and no need for a new dam.
Canberra is quite big enough. The bureaucrat-developer growth mania in Canberra causes enough aggravation on its own. But the smaller-Canberra argument will not get a look in in the debate about water and land use.
Not even John Hewson’s “”Scorched Canberra” policy will have much effect. It will be quickly over-ruled by the growth maniacs, in both the public and private sectors. But I have allowed a main issue to divert me from the minor point at hand. How can we cut water consumption, and what will be some of the consequences?
Water has always been undervalued in Canberra. It costs about $200 a head to provide, yet we are only charged something like $125 a head for its supply.
That gap is the widest among the capitals. Perth is the only capital where revenue meets cost, at around $140 a head. (The smallest capitals, Hobart and Darwin, which also have climatic extremes, are left out of comparisons.)
In the past the Federal Government has lavished capital works and infrastructure services on Canberra. Now it has withdrawn and made it quite clear we have to pay for our own.
One way or another, sooner or later, the people of Canberra will have to pay for their water. The phrases “”one way or another” and “”sooner or later” were not thrown in as a couple of space-filling cliches. They were deliberate.
Water can be paid for in several ways (one way or another). The methods vary from a strict user-pays to free water provided by the state and paid for out of general revenue.
Given the ACTEW is supposed to be run on businesslike lines, it should tend to user-pays. A strict user-pays system is impossible. It would be an administrative nightmare to determine the precise cost of supply to each household, because supply includes the laying and maintaining of pipe which is different for each house and certainly different between Gungahlin (kilometres from the dams and treatment plants) and the inner south. Some sort of averaging is necessary.
User-pays based on quantity used is a reasonably efficient way to go. And this is the way ACTEW is going, with some qualifications, because ACTEW is not quite like a fully private business. It reports to a Minister, who has a degree of control.
It would be self-serving churlishness for me to illustrate that ministerial control by Terry Connolly’s idiotic edict last week that ACTEW cannot give information to the media without it going through his office first, so I’ll use another illustration instead.
The Minister, and presumably the people who vote for it, want concessions for some users. At present they are given to schools, churches (holy water?) and pensioners, for example. A fully private utility might not be so generous.
However, the huge gap between cost of water supply and revenue cannot be explained by the concessions alone. It would amount to about $500,000. The difference between cost and revenue would be three times that, and even then it would not account for some profit to go back to the ACT Government or for some to be put aside for future capital spending, like the big new dam.
So where is the money coming from to finance the gap between water cost and water revenue? Well, it is not coming out of ACT general revenue. It is coming from cross-subsidy with electricity. In effect, large profits from electricity charging are being used to prop up big losses in water.
Economists, especially those on the efficiency-crazed Industry Commission would say this is a Bad Thing.
ACTEW also recognises it is a Bad Thing and is doing something about it. Several years ago electricity cross-subsidised both water and sewerage. Sewerage did not make enough operating profit to allow for future capital spending and a dividend to the ACT Government. Now, ACTEW could well argue, it does.
Several years ago, electricity cross-subsidised water to a huge extent. About 40 per cent of the electricity profit was going to pay for losses on the water account.
The Industry Commission sensibly argues that slugging people who use three-bar heaters to pay for people who like croquet-green lawns is inefficient. User-pays, it has argued consistently, ensures the right resources are devoted tot he right tasks. People who like a croquet lawn will only think seriously about it if they are slugged for its true cost. They might think about taking up bocce instead. Or they might at least think about tap timers.
To this end ACTEW has attacked the cross subsidy with some effect. Last financial year the cross subsidy was down to less than 10 per cent of electricity profit. It still has some way to go and wants to finish the job. That is partly what last week’s issues paper was about.
It might seem odd that an organisation like ACTEW, purporting to be a commercial business, is launching a conservation program so that people will use less of its product. You would hardly expect Marrickville to launch a program: “”Don’t buy so much of our margarine.” Sure, ACTEW does not want to build an expensive new dam. Even so Marrickville would hardly say: “”Don’t buy so much of our margarine; we don’t want to build a new factory.” It would build the factory with glee.
This is the difference between ACTEW and a margarine company. ACTEW, thank heavens, has a broader agenda of community good. Like any company it is answerable to its shareholders. But in this instance, its shareholders are the ACT Government, which quite reasonably wants a say in long-term matters, like the financing and environmental costs of a new dam. This is why ACTEW should be a public utility, not broken up into a series of competing purely private ones.
Private companies would flog the water off for the maximum short-term profit and maximum short-term dividend to its private shareholders. That is an excellent and efficient way of producing widgets and other consumables, perhaps the best way every devised. But it is not a good way to distribute water.
Efficiencies have to be delivered other ways.
Paying for water through electricity cross-subsidisation and through per-household “”free” allowances are demonstrably inefficient. ACTEW has lowered the free allowance from 455 kilolitres a year to 350. Mr Connolly suggested that the free allowance could be reduced further and gradually, but that there should always be a “”free” allowance for equity reasons.
I’d argue to the contrary. It should be reduced to zero in one hit in about a years’ time and that the concessional rebates (for holy water and pensioners) of 50 per cent of the bill be cancelled. The concessional rate should be replaced with a set lump-sum further reduction of rates which recognise personal hardship and community value, but do not base that recognition on how much water they use. Indeed, a school or church is surely less worthy if it uses more water.
The free allowance should be axed because experience elsewhere shows it has a dramatic effect on consumption. When the allowance is cut, the overall per-kilolitre could come down commensurately. A higher per-kilolitre charge could apply after a certain high-usage point, because these are the users who are not responding to the conservation message.
There is another reason for a one-hit change. We have about 30,000 households in the ACT being rented, about 13,000 in the public sector. At present they have little incentive for water conservation. They get 350kl paid for by the landlord free, so they have no incentive to use less.
Water bills should be paid by people renting with meters read at the end of the tenancy, just like electricity. The ACT Housing Trust could reduce its rent by way of compensation.
Private landlords, subject to market pressure, are less likely to reduce rents if they can get away with it. However, private landlords at present claim the water rate as a tax deduction. This costs the Federal Government about $1.7 million a year. If the ACT Government made the change in one hit, it could claim that through the Grants Commission and use the money for better targeted welfare.
Further, if the Coalition wins and puts a GST on water bills, the ACT will have to do a further deal through the Grants Commission, or perhaps start charging Federal bodies that use ACT water.
Making people pay for every drop of water they use will work quicker and more effectively than other measures, worthy as tanks, double-flush dunnies and recycling grey water are. Then we will not have to build the costly dam. This will mean more money in the ACT coffers to pay for more effective welfare and equity payments.
Giving people “”equity” through free water is silly. It is also inequitable that about half of Canberra’s users do not use the “”free” allowance anyway and are subsidising more profligate users. And it is often the case that rich people have houses with large gardens and use more water.
The new dam in 2002 seems a long time away, but unless Canberrans can show they can cut water consumption in the next couple of years, it will have to go ahead. It will be no good screaming in 2001 about the wrecking of a valley or the carving of a road through the bush in the next year. Now is the time to think act. And what a delight it is to see a public utility prodding us in to some long-term thinking.