Government agency Infrastructure Australia has warned that water bills for Australian households could double in real terms by 2040 unless a comprehensive water management strategy is implemented.

The report, ‘Reforming Urban Water’, was released by Adrian Dwyer, Executive Director of Policy and Research at Infrastructure Australia. The report focuses on the provision of water for the 20 million Australians who live in cities and large towns.

“In releasing this paper, we’re hoping to make people stop and think about urban water, realise that we need to change how we are currently operating and start planning, for the longer term, for our future,” said Mr Dwyer.

“Our concern is, that without action, household water and sewerage bills could go the way of energy and rise dramatically.”

He said that Australia’s urban water sector is much improved from the sector in the early 1990s, thanks to the COAG Reform Framework in 1994 and the National Water Initiative in 2004.

“These both sought to unlock efficiency gains and improve service quality through a variety of governance, pricing and regulatory reforms. These changes were driven within each jurisdiction, but with the guidance and leadership of the Australian Government and independent agencies such as the National Water Commission.”

But he said that urban water has fallen behind the rural water sector. “Progress against urban water objectives, such as cost-reflective pricing and independent pricing regulation, has slowed, or even gone backwards.”

In preparing the report Infrastructure Australia commissioned modelling to show how a range of factors could affect the average household bill. “Alarmingly, we found that without action, our water bills could double by 2040.

“This would see the average bill increase from around $1200 to over $2500 in today’s money. This will place further pressure on their household budgets. It is imperative that the urban water sector ensures services remain safe, efficient and affordable.

“In the water sector, many parts of the country lack cost-reflective pricing, so cost increases may not be passed through to customers. Instead, it will be the broader taxpayers who foot the bill or—where there is insufficient funding—service quality could decline.”

The report identifies four national objectives for the sector to underpin all decision making and long-term planning in urban water:

• a focus on the long-term interests of users
• efficiency and affordability
• independence, transparency and accountability
• security and resilience.

Mr Dwyer said Australia’s federal system has worked against national consistency of urban water governance and regulation. Past reform efforts have left us with eight separate systems across jurisdictions—at various stages of progress.

“The experience of Victoria over recent years, and NSW before them, provide examples for other states to follow. Many smaller states, including South Australia, Tasmania and the ACT, have excelled in a number of areas of reform despite their scale.

“But no jurisdiction meets best practice across all forms of regulation. This means there is still work to be done across the country to ensure water services are delivered efficiently, securely and transparently—and most crucially, in the long-term interests of customers.

The reports recommends a three stage approach to urban water reform:

Stage 1

Establishing a national reform pathway, which should be done by the end of 2018, after the completion of the Productivity Commission’s inquiry report on National Water Reform.

“The time has come for a new national agreement that focuses on urban water. The National Water Initiative may still provide the most appropriate vehicle for rural water reforms, but the scale of change required in urban water means it warrants a separate agreement—guided by strong national objectives.

This national agreement should follow four national objectives:

• a focus on the long-term interests of users
• efficiency and affordability
• independence, transparency and accountability
• security and resilience.

Stage 2

Introduction of nationally consistent reforms, over the next five years.

“This includes a range of refinements to regulation and governance in each state and territory, as well as improvements to long-term planning and pricing frameworks, and enhanced collaboration between regulators.

“Regional outcomes should be prioritised to ensure customers outside major cities also benefit from progress in urban water delivery. Private participation should be encouraged where there is potential for it to improve services and reduce costs.”

Stage 3

A national regulator and the privatisation of urban water assets. “This could provide substantial benefits to customers if implemented in the right way—but it is important to recognise that the sector needs to be reformed first.”

The report is available here.