Massey University agribusiness expert Dr James Lockhart and agri-economist Peter Fraser believe Labour had tried to solve two politically charged but distinctly different problems with a single, punitive approach.
Late last week Labour announced its intention to charge a royalty on water bottlers and irrigators, with funds from the irrigation charge being given to regional councils to improve water quality.
“Other things aside, the first problem I and many others have had with this is determining exactly how much they would be charging,” Lockhart said.
“They put the policy out but left a vacuum around the amount, causing no end of confusion and a wide range of figures in terms of charges and total costs.”
Latest indications, confirmed by Lockhart, were Labour would look at charging irrigators 2c a cubic metre. Water bottlers were estimated to be expected to pay 10c/cubic metre.
Calculations based on an average Canterbury dairy farm put the cost at $40,000 to $60,000 a year and at about $50,000 for an average Canterbury lamb fattening unit.
But by tying the royalty revenue back to the relevant regional councils for water quality improvements and charging water bottlers for exporting the resource, a “polluter pays” type tax had been bundled into an extraction charge.
“The royalty charge on irrigators specifically is a very punitive tax when we already have mechanisms in place to deal with water quality management through our regional councils.”
He acknowledged those systems were not always perfect, as the Horizons One Plan made plain. However, they could be sharpened and toughened up by central government.
Labour leader Jacinda Ardern had emphasised the party did not want to compromise farm profitability with the plan and would make allowances on the rate in dry periods.
“But that is the very time when water is most scarce and actually worth more,” Lockhart said.
“The environmental damage from taking it to use for irrigation is also greatest. Straight away the policy becomes counter to what is trying to be achieved.”
Fraser said based on his experience in Treasury any tax that singled out a particular user and had variations between users was at least inequitable and at worst unconstitutional.
“Look at why GST is successful. It is applied uniformly with no exceptions on the goods or services and it has a single rate, again no exceptions.”
Taking a single flat royalty rate across all water users – commercial, domestic and primary – created an equal footing in valuing the resource.
It also marked a good point to start when identifying its value in specific uses.
“From there you then have to deal with water bottlers, even if only for political reasons.
“That could be done by tendering the rights to bottle water so they pay the royalty plus a premium by purchasing that right.”
Under Labour’s policy large soft drink and beer bottlers whose product was 90%-plus water would be immune from such a charge because of their urban water sources, Fraser said.
Lockhart agreed and maintained before any royalty or charge system was set up water had to be recognised as the national resource it was.
That could be done through a separate act similar to the Crown Mineral Act, where royalties were charged to extract gold, oil, coal and other minerals.
He saw NZ’s water as akin to Norway’s oil reserves and as such an opportunity to raise income from its extraction to grow national wealth.
“At present we allow foreign firms to bottle our water and export it for relatively few jobs and no profit returned here.
“We would not do that for oil, coal or any other resource and nor would any other country.”
Putting a value on the water raised the issue of payment to iwi, an issue Labour had acknowledged was open for negotiation.
But Fraser said leftover funds could and should go to another public asset, the Superannuation Fund.
“Given both water and super are intergenerational issues, I think it makes sense.”
Norway had a government pension fund, the Oil Fund, valued as the largest pension fund in the world at NZ$1.25 trillion.
Both men were dismissive of the claims made by some sectors the water cost would lead to $18 cabbages, given the significantly lower values proposed and the horticultural sector’s inability to set prices to reflect rising costs.
