Brian Fallow: Charge for water? There's nothing wet about it

Even in dry areas, dairy farms don't rely entirely on irrigation.

Amid all the scaremongering and special pleading about Labour's water policy are two things we can surely all agree on.

One is that no-one ever likes the idea of paying for something that has always been free. The other is that many of our rivers and other waterways are now little more than sewers.

The status quo is a case of privatise the gains and socialise the losses.

It is pretty conventional, where a public resource (that is, one that is not private property) is taken and used for commercial gain in a way that deprives anyone else from using it, for a royalty to be charged.

"When a public resource such as [freshwater] is being used for a commercial profit the public has a right to get a return on it by way of a royalty - as we do for oil, gas, coal, silver and gold, and even gravel," Labour's policy says.

That is only fair, it argues, and also efficient, inasmuch as we tend to be more frugal and exact in the use of something we pay for.

Clearly there is already a cost, often substantial, in the infrastructure needed to move water from where nature has put it to where a farmer or other commercial user needs it. The same is true of other resources that attract a royalty.

Equally clearly, there are wider economic benefits from the exploitation of these resources. But the fact that Taranaki has benefited from the presence of a gas industry is not a reason to give the stuff free of charge to oil companies. Rather, it goes to the issue of how much to charge.

It is unhelpful to use the language of ownership on this context. That invites reactions like the Maori Party's: "Who owns the water? Labour says everybody, National says nobody, but the Waitangi Tribunal says Maori."

Labour says it agrees with the tribunal and the Land and Water Forum that the issue of Maori rights and interests in freshwater needs to be resolved with the Crown, if a system of freshwater management is to be stable and durable.

"Such a resolution is expected to involve a share of freshwater royalty revenue being allocated to Maori. The resolution would recognise that others also have rights and interests in freshwater." Labour's water spokesman David Parker says the majority of the royalty revenue would go to regional councils in the areas where it is raised, and none to central government - another reason why it is misleading to call it a water tax.

Perhaps because it expects the amount of the royalty to vary from region to region, or even within a region and depending on the use, it has taken a while for it to put an indicative number on it: around 2c per cubic metre, Parker says, which would raise about $100 million across the country.

That vagueness has allowed a lot of nonsensical shroud-waving. Winston Peters, for example, said, "One large vegetable grower has estimated that 1c tax per litre of water adds up to a 300 per cent increase in supermarket prices ... The price of a single cabbage could soar to just under $18." But Labour is talking about 2c per cubic metre of water - which is 1000 litres - not 2c per litre.

As a rule of thumb, it takes around 1000 litres of water to produce 1 litre of milk.

At 2c per 1000 litres of water, the royalty would add about 24 or 25c to the cost of producing a kilogram of milksolids.

But only if every single litre of water used came from irrigation. Even in Canterbury, the region most heavily reliant on irrigation, only a minority of the water used for dairying comes from irrigation.

When a public resource such as [freshwater] is being used for a commercial profit the public has a right to get a return on it by way of a royalty.

Labour

So we are talking about a change that would add a few cents a kilogram of milksolids to the costs of some dairy farmers. Hardly a lethal impost.

Then there is the issue of the pollution of rivers arising from intensive agriculture.

Labour's policy there includes setting tougher standards for swimmable rivers through a new national policy statement and to require resource consents for intensification of farming.

Within five years it will require all intensively stocked land near waterways to be fenced with setbacks for riparian planting to filter and absorb silt and nutrients before they can flow into the water.

It says its Ready for Work programme will employ young people off the dole to work on fencing, planting, and other work to improve water quality. Riparian planting will qualify for carbon credits under the emissions trading scheme.

Farmers need to recognise already that practices that are not environmentally sustainable in the long run are not politically sustainable either. The smart ones already do.

In the meantime, so long as they can expect to avoid the costs of environmental externalities, that fact will just be capitalised into the price of farm land, meaning a bigger tax-free capital gain for the vendor and a correspondingly larger mortgage for the buyer. It is interesting that Federated Farmers' loyalty seems to be to the former.

Labour's policy has been criticised for inconsistency, for example in giving only a token nod to urban pollution of waterways and not imposing a royalty on large urban commercial water users.

Consistency is important, but not all-important. The tax system is riddled with boundary issues and anomalies. Is that a reason for no-one to pay tax?

It is annoying to be pinged for something someone else gets away with.

But it would be unwise to stand in the dock saying, "I wasn't the only drunk driver on the roads that day, your honour. I shouldn't be punished when they escape scot-free!" This is a case when the best should not be the enemy of the good.