Victoria's job market, economy and embattled northern rivers are all suffering as a result of State Government-backed restrictions on water trading among farmers, a confidential Federal Government study has found.
A report for Water Minister Penny Wong's department, obtained by The Age, has found that the 4pc cap on the buying and selling of water rights is costing cash-strapped farmers $19 million and the state economy almost $6 million, as well as 40 potential jobs.
It is also a "severe constraint" on the ability of the Federal Government and others to purchase water for the rivers and wetlands of the southern Murray-Darling basin.
Its findings are embarrassing for a State Government that prides itself on a free-market agenda but has championed a cause dismissed by many critics as old-fashioned agrarian socialism.
The report was seized on yesterday by environment groups that have been pushing to lift the cap to free up water for the environment, and what they describe as more "high value" agriculture.
Environment Victoria's chief executive, Kelly O'Shanassy, said it shows that the Government's opposition to lifting the water usage cap in the Murray-Darling Basin is costing jobs, restricting economic gain, and undermining the health of our major rivers.
The August report by Hyder Consulting says the cap has prevented many farmers from selling their water entitlements and, in some cases, getting off the land altogether.
It says that in the 2007-08 irrigation season, the 4pc cap was reached in seven out of the 10 districts in northern Victorian.
A total of almost 7.4 billion litres of water rights worth $19 million could not be sold.
The report says the estimates of the cap's economic downsides are probably understated as they do not account for farmers not even trying to sell, because the cap in their district has been reached.
Under water-trading rules, irrigating farmers are free to sell their legal right to extract water from rivers and streams.
They can also trade their yearly allocation.
But a cap applied through the southern Murray Darling region restricts such trade to just 4pc of a district's overall entitlement.
It is intended to avert an exodus of drought-stricken farmers and prop up struggling irrigation communities.
Victoria successfully opposed a federal bid to scrap the cap at the July Council of Australian Governments meeting.
Under a compromise, the cap will be lifted to 6pc late next year.
The consultant's report calls instead for the cap to be phased out completely by 2014, with the first change, to 6pc, in January.
Yesterday Victorian Water Minister Tim Holding defended the Government's position.
"Despite pressure from the Commonwealth and other states, Victoria has been able to ensure the 4pc cap remains," he said.
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