Water reforms could improve economy, says NZIER

A new report says changing the way water rights are allocated could improve our economy.

Simple reforms in the way water is allocated would help improve the performance of the economy, a note from thinktank the NZ Institute of Economic Research (NZIER) says.

Note author NZIER senior fellow Brent Layton identified reforms that would improve tradability, extend the duration of water permits and require regional councils to buy back entitlements to deal with temporary water shortages.

In this country water permits were not readily transferable, particularly as most transfers between sites would be for a short term and so of limited total value relative to the potential costs incurred seeking approval, the note said.

Often the right to take water and the right to use water were bundled up together and that restricted the ease of transfer between sites.

The way consents were allocated now gave an incentive to applicants to seek a larger entitlement than they might realistically need.

Regional councils were not allowed to charge applicants for the resource over which they granted consent, only for their own costs.

As a result applicants were best to err on the side of seeking consents bigger than they may need.

Limitations on transferability meant those holding water permits with greater entitlements than they needed often did not face the opportunity costs of doing so, the note said.

"The resource remains locked in a use with lower value than alternatives. In fact, water that would be valuable in some other use can remain completely unused."

The maximum 35-year entitlement with no guarantee of renewal discouraged efficient investment in the use of water permits.

Any party investing to use the water resource ran the risk that in 35 years or less its investment would become worthless, except to the extent the investment could be moved.

But many of the investments to use water, such as irrigation dams and channels and ridged fields, were long lived assets and immobile.

Also, the ability for regional councils in a serious temporary water shortage to over-ride existing consents undermined the value of consents to holders and was likely to limit the extent to which they invested in activities and capital dependent on them, the note said.

"Since regional councils are elected by the citizenry at large they are most likely to intervene to maintain municipal water supplies and other uses valued by electors."

Those uses did not necessarily have the highest value to society as a whole.

If councils had to buy back entitlements to deal with water shortages, the resulting temporary reallocation would improve the efficiency with which water was used, and the negative potential effects on investments subject to these rights would be avoided.

- NZPA