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The history of river management in Australia’s Murray-Darling Basin demonstrates the effective limits of political and financial power in a federal system. While the financial power rests overwhelmingly with the federal government, state governments with greater knowledge and administrative capacity have pursued their own different goals. Backed by a funding package of over $12 billion Australian over ten years the federal government is currently implementing a comprehensive Basin Plan. This involves not only a shift in responsibility for high level policy to the national government but also an attempt to make river management sustainable from a basin-wide perspective The Council of Australian Governments has unanimously agreed that reform is needed but the proposed policy and institutional changes introduced by the federal government are being widely resisted by state governments . This chapter places the current debate within its historical context and discusses a new set of institutional arrangements that are emerging unplanned and unintended but which could prove quite robust and moderately effective.

Recent water reform in the Murray-Darling Basin has been strongly influenced by neo-liberal principles. Introduced in the 1990s the water market allowed irrigators to reduce the potential impact of a severe drought in the 2000s. It also made it possible for governments to purchase large volumes of water to slow the decline in resource security and the riverine environment, albeit through large payments for water entitlements handed out near free of cost earlier in the twentieth century. But the strength of neo-liberal perspectives among policy makers and the public is making it increasingly difficult to argue for programs that promote sustainability and resilience in anticipation of climate change when they conflict with profitability. Neoliberal purchaser-provider arrangements are also at the core of the Commonwealth Water Act 2007. It gives the national government control of high-level policy and states will be rewarded financially for implementing plans developed within its framework. This chapter predicts, however, that the distinction between purchaser and provider will collapse in the event of serious tension between the national government and the states because national government members of parliament are unlikely to allow serious financial penalties to be inflicted on voters in their state based electorates.