The National Water Commission has issued a landmark report urging Australian governments to overhaul the way urban water supplies are managed.

 

The Urban water in Australia: future directions report has found that arrangements for managing water in the towns and cities are inadequate and have led governments to make "panic" decisions - including to build "very expensive" energy-guzzling desalination plants - while paying little attention to the costs imposed on consumers and taxpayers.

 

The report also concludes that, while Australia's water quality has been good, urban water quality will be increasingly at risk from more frequent and severe algal blooms, bushfires, storms and floods.

 

It says reform is urgently needed to protect public health in rural and regional areas - particularly in NSW and Queensland - because customers are exposed to water quality "risks".

 

The Commission says it is not confident that public health will be adequately protected unless there is action, and has called on the Council of Australian Governments (COAG) to develop a new national agreement on urban water, backed by incentives.

 

"Even though drought has eased in many parts of the country, Australia's urban water industry still faces significant challenges including climate variability, population growth, rising costs, and ageing network infrastructure," National Water Commission chair, Chloe Munro said.

 

The report singles out costly policies pushed by governments in "crisis mode" during the recent drought, saying these have driven up water bills and escaped the scrutiny of economic regulators.

 

It concludes "there is no reason to expect that the urban water sector will not find itself in reactive crisis mode again at some time in the future".

 

Modelling produced for the report finds that rainwater collection tanks, which became popular because of water restrictions imposed during the drought and federal rebates, are costing consumers between $700 million and $1 billion a year, while private bores are costing between $100m and $500m a year.

 

"Many households were denied access to potentially more cost-effective options to secure their supplies," the report found.

 

On taxpayer subsidies for projects such as the southeast Queensland water grid, the report finds this "represents a significant amount of money not available for other purposes such as health, education and roads, and a level of funding that may not be fiscally sustainable."

 

Water bills have increased significantly to pay for desalination plants, and will continue to do so "for many years".

 

Finding that the average household water bill is about $770 a year, the report concludes that "it is no longer true to say that water is a small contributor to the cost of living compared with other utilities".

 

The report recommends more flexibility in water prices, including allowing customers to pay for different levels of supply security and says government subsidies which shield consumers from price rises should be restricted.

 

It also finds that the use of "inclining block tariffs" that were introduced to curb water use during the drought means that some households are now paying as much as $4 a kilolitre when dams are overflowing.

 

Pressures on water bills are only likely to continue, the report suggests, as labour, capital and energy costs are all spiralling upwards. On top of this, major new investment in water infrastructure is expected.

 

The commission will push for specific reform proposals including governments removing policy and legal barriers to recycled water and potable reuse, which have been stymied by "cumbersome" approvals processes.

 

The commission also says that greater use should be made of water trading to ensure that more profitable use was made of water.

 

The report can be found at www.nwc.gov.au