Cost recovery - frequently asked questions

What is cost recovery and what is its purpose?

Cost recovery means requiring those users who derive private benefits from a service to pay for some, or all, of the costs of that service.

Costs that are related to services that provide benefits for the wider community would not be included, nor recovered from individual users.

These costs would continue to be funded from general government revenue (i.e. derived from taxes).

How is cost recovery justified?

Generally, it may be more appropriate and fair for the beneficiaries of a service to pay for that service, rather than the 'taxpayer'.

In the case of water, a user-pays system ensures that the true cost of managing the resource is transparent and encourages the efficient use of water.

In turn, this will help to ensure reliability of supply in the future.

This principle is recognised in the National Water Initiative (NWI), to which all states, including Western Australia, have agreed.

It is also part of the Council of Australian Governments' water reform agenda.

Paragraphs 64 and 67 of the NWI propose full recovery of water resource planning and management costs:

Best Practice Water Pricing and Institutional Arrangements

64. The Parties agree to implement water pricing and institutional arrangements which:

• promote economically efficient and sustainable use of:
  • water resources;
  • water infrastructure assets; and
  • government resources devoted to the management of water;
• ensure sufficient revenue streams to allow efficient delivery of the required services;
• facilitate the efficient functioning of water markets, including inter-jurisdictional water markets, and in both rural and urban settings;
• give effect to the principles of user-pays and achieve pricing transparency in respect of water storage and delivery in irrigation systems and cost recovery for water planning and management;
• avoid perverse or unintended pricing outcomes; and
• provide appropriate mechanisms for the release of unallocated water.

Cost Recovery for Planning and Management

67. The States and Territories agree to bring into effect consistent approaches to pricing and attributing costs of water planning and management by 2006, involving:

• the identification of all costs associated with water planning and management, including the costs of underpinning water markets such as the provision of registers, accounting and measurement frameworks and performance monitoring and benchmarking;
• the identification of the proportion of costs that can be attributed to water access entitlement holders consistent with the principles below:
  • charges exclude activities undertaken for the Government (such as policy development, and Ministerial or Parliamentary services); and
  • charges are linked as closely as possible to the costs of activities or products.

Which costs are recovered and how will that be done?

The details of which costs will be recovered and how that will be done are not decided by the Department of Water but by the state government.

The decision will be influenced by recommendations made by the ERA in its final report, which is expected in late 2010.

We anticipate that the ERA will base its recommendations on principles that make cost recovery fair, transparent, practical, consistent and efficient.

For details on our position on the principles for cost recovery please see our submission to the ERA issues paper on water resource management and planning charges.

Since water is vested in the Crown why can’t water resource management and planning costs be paid through taxes?

Currently all water resource management and planning costs are paid for though taxes as 'consolidated funds'.

However, many benefits are seen as 'private' accruing to particular water users and, as such, it would appear to be fairer for those users to cover these costs.

It is worth noting that Western Australia is the only state that does not have any arrangements for cost recovery of water resources management and planning.  But no decision has been made yet about if costs will recovered from users and how.

How does cost recovery deal with private investments in water infrastructure, e.g. farm dams?

If cost recovery is implemented for water resource management, dam owners will still be responsible for building and maintaining their infrastructure.

The charges that we could be recover are those that originate from research, modelling, planning, monitoring, enforcement and administration of the relevant resource.

It is important to keep in mind that we are doing this work because there are private water users who want to use the water to generate an income.

If there were no water users there would be no need for determining the sustainable level of use, potential environmental impacts and potential impacts on other users within the same system.

The need to do this work is independent of any investment by the private users.

Does the planned new water legislation have to be in place before cost recovery can be introduced?

Recovery of some costs is possible under the existing legislation, although recovering costs for some of our activities will require new regulations.

The Discussion Paper, Water Resources Management Options, outlines one set of options that government is considering for new water resources management legislation.

If new legislation were to be progressed, a 'Green Bill' would be released allowing for extensive consultation and public input.

Will all privately owned dams in Western Australia be licensed?

Currently, only private dams in proclaimed area are licensed if they fulfil certain conditions.

There are 22 surface water management areas proclaimed under the Rights in Water and Irrigation Act 1914.

In these areas it is illegal to take water from a watercourse without a license.

However, a landholder can build a dam on their land without a license as long as:

• the dam is not in a watercourse or wetland
• there is no noticeable change in the volume or flow of a watercourse or wetland
• there are no significant environmental effects.

While the details of any cost recovery arrangements are yet to be decided, if a form of licence fee was to be introduced, it would logically only apply to those people who have a water licence, including a licence for water taken from dams.

Why are garden bores in Perth not metered and not subject to licence fees?

According to a recent survey, there are approximately 176 000 garden bores in Perth.

Generally, these bores tap the superficial groundwater table in the metropolitan area with low impacts on the environment and other water users.

In some cases the taking of water is even beneficial, because the water table has risen due to urban development, or, more generally, because it reduces the use of better quality drinking water.

Because of the large number of bores, and the high cost of water meters and their installation and monitoring, metering of low-yielding bores is not considered feasible and the costs could not be recovered.

Low-yielding bores include those used for watering stock and domestic gardens,

In addition, other methods, such as education and awareness campaigns, regulations and incentives, may be more appropriate approaches to achieve efficient use of water.

Strategic Policy 2.03 - Managing unlicensed groundwater use provides details for the cost-effective management of stock and domestic bores.

We regularly review how we manage unlicensed groundwater users and the resources they access.

If management practices do not deliver the desired outcomes we will increase our effort, which may include licensing of all groundwater users in specific areas.

At present this is not considered necessary in the Perth metropolitan area.

However, a garden bore metering project is under way to improve the estimates of water use. Depending on the results, management may change.