Steve Bracks has ripped nearly $1 billion out of Victoria’s water utilities – while the state’s farmers are buckling under a killer drought.

In 2001, City West Water established a three-year pricing scale. A scale that is echoed in the price increases of the other retail water companies whose annual “service charge” and usage costs per kilolitre have also been rising.

2001/2002: CPI + 2%
2002/2003: CPI + 1%
2003/2004: CPI

With the worst drought in 20 years turning the Victorian countryside into a dustpan, it is interesting to know where these water profits have been going.

On Monday last week, Steve Bracks announced a $320 million water fund as a centrepiece of his low-key campaign launch. However, punters are soon going to realise that the Bracks government has now ripped almost $1 billion out of the water sector to prop up its budget over the past three years.

The 2000-01 budget papers show they were originally expecting to rake in $273.5 million but this increased to $314 million. Then the most recent May budget figure came out tipping an increase in water dividends to $320 million for 2001-02 but this appears to have now been jacked up to about $350 million in the latest budget update released on Friday although unfortunately there is no breakdown of the dividends.

Therefore, this is the record on the water dividends by the Bracks government:

2000-01: budgeted $273 million and took $314 million
2001-02: budgeted $266 million and took $304 million
2002-03: originally budgeted $279 million, now aiming for about $350 million.

Treasurer John Brumby has been pushing the line hard about low net debt figures in the budget but this is an absolute rort because it excludes debts held outside the budget sector.

The largest lump of this debt sits in our water companies which the latest Treasury Corporation of Victoria annual report reveals now totals more than $2 billion and breaks down as follows:

Melbourne Water: $1.16 billion
City West Water: $151.3 million
Yarra Valley Water: $512.7 million
South East Water: $317m

This makes a grand total of $2.15 billion.

Water sector debt peaked at about $3.6 billion when the Kirner government lost office in 1992. They even forced Melbourne Water to sell off their receivables so they could fund unsustainable dividend payments into the budget.

Given the drought and water restrictions, the Bracks government should not be proud of the following water equation: prices up, dividends up, debt up, capital investment down.

A 10 per cent price rise in 1993 were part of the Kennett government’s debt attack, and was aimed specifically at Melbourne Water’s $3.6 billion debt. The increase was said to be unavoidable at the time because the debt was consuming 41 per cent of Melbourne Water’s annual rate revenue.

Corporatisation of the water system in 1995 was the first step towards the record profits. Although water charges remained fixed in nominal for three years (ie they fell almost 10 per cent in real terms) between January 1995 and December 1997, dividends were still high.

In 1998 water and sewerage rates were abolished and an across the board user-pays system was introduced which also had the effect of lowering prices. This change introduced a tariff for each service comprising a fixed service charge and a volume based usage charge. These charges remained fixed for two and a half years, between January 1998 and June 2000, and yet dividend profit still increased.

1995-1996: $125 million
1996-1997: $250 million
1997-1998: $315 million

The Bracks government first increased water prices in July 2001. Previously water prices had seen a small drop after the introduction of the GST in July 2000, (City West Water had a 52 cent drop in the annual service charge), but before that prices had remained unchanged for years.

City West Water illustrates the effects of these changes on the bill of a typical City West Water residential customer who consumes 240,000 litres of water per year as follows:

1 July 1998: $444.24 (no change)
1 July 1999: $444.24 (no change)
1 July 2000: $443.72 (- $0.52 due to GST)
1 July 2001: $465.18 (+ $21.46)
1 July 2002: $483.95 (+ $18.78)

These latest price increases are in line with the three-year pricing scale, which has been delivering the large dividends to the government. Should these water profits flow back to ratepayers, or to help combat the drought or should it just go to Treasury and pad out the budget?

The Bracks government is certainly emulating Cain and Kirner with these raids on public sector authorities to fund spending blowouts.

And the dodgy accounting is familiar too. The most recent budget update increased dividends for 2002-03 by $140 million which allowed Brumby to claim a stronger budget position.

The Opposition reckon about $80 million of this has come from the water sector which paid the following dividends in 2001-02:

– Melbourne Water – $98.942 million

– City West Water – $54.750 million

– South East Water – $62.300 million

– Yarra Valley Water – $52.693 million.

The water dividend appears be rising by about one-third in 2002-03 but then the forecast dividend increase in 2003-04 has been cut from $356.8 million to $274.4 million so it looks like a dodgy pull forward of a raid.