Wednesday, 13 May 2026

Environmental Water Recovery Remains a Commonwealth Priority

2026-27 Federal Budget Analysis

The Treasurer delivered the 2026-27 Federal Budget amid growing global uncertainty, elevated input costs, ongoing cost of living pressures and a tightening timeframe to complete the Murray-Darling Basin Plan (Basin Plan).

The Budget is centred on cost of living relief, housing affordability, fiscal restraint and economic resilience, while continuing to prioritise defence, energy transition, climate resilience and longer-term structural reform. A deficit of $42.1 billion is forecast for 2025-26, although the Government argues debt remains lower than previously projected due to stronger revenues and fiscal discipline.

From a water perspective, the 2026-27 Federal Budget confirms the Commonwealth remains committed to ongoing Basin Plan implementation, environmental water recovery and broader Murray-Darling Basin reform activities.

Importantly, the Department of Climate Change, Energy, the Environment and Water Portfolio Budget Statements continue to project cumulative recovery toward the 450 GL additional environmental water target increasing from 200 GL by 2025-26, to 300 GL by 2026-27, before reaching the full 450 GL target by 31 December 2027. While the Budget does not specify how much of this recovery will occur through direct entitlement purchases versus infrastructure and other recovery pathways, the projections imply substantial ongoing environmental water recovery activity over the next 18 months.

While the 2026-27 Budget is comparatively quieter on explicit new water purchasing announcements than previous years, substantial funding for environmental recovery and Basin implementation remains embedded across existing Commonwealth programs. Similar to prior Budgets, portions of Basin Plan expenditure and socio-economic adjustment funding remain "not for publication" (nfp) due to ongoing negotiations and commercial sensitivities associated with Basin implementation activities.

Total Commonwealth payments for water services and infrastructure are estimated to increase from $718.2 million in 2025-26 to $808.9 million in 2026-27. Major ongoing funding streams include the Resilient Rivers Water Infrastructure Program ($210.4 million), the Sustainable Communities Program ($72.5 million) and Basin constraints measures ($69.3 million).

In addition to these existing commitments, the Government will provide an additional $21.1 million over four years from 2026-27 to continue water reform activities, including:

• $6.8 million to continue arrangements supporting First Nations ownership, access and management of water
• $4.5 million over four years to update and improve Water Efficiency Labelling and Standards scheme cost recovery arrangements
• $3.9 million to support water market transparency, integrity and Basin Plan engagement activities
• $3.9 million to continue hydrological modelling supporting Basin Plan implementation
• $2.0 million to continue funding for the Goyder Institute for Water Research

The Budget also continues to identify Murray-Darling Basin "risk assignment" as an unquantifiable fiscal risk under the Water Act 2007, reinforcing that Basin Plan implementation continues to carry unresolved financial and policy exposure for the Commonwealth.

Compared to the prior year, there is also less emphasis on major new water infrastructure measures, with the Budget identifying savings of $103.9 million over seven years from 2028-29 through the return of uncommitted National Water Grid Fund allocations. This further supports the view that Basin reform is transitioning from a major funding and infrastructure expansion phase toward a longer-term implementation, delivery and governance phase.

More broadly, the Budget suggests Basin reform is entering a more mature implementation phase, with MDBA staffing projected to decline from 387 to 327 positions in 2026-27 despite ongoing Basin Plan Review, SDL reconciliation and implementation responsibilities.

Separately, the proposed Capital Gains Tax reforms may have implications for water entitlement investment. While the proposed changes do not specifically reference water entitlements, water assets are generally treated as CGT assets under existing tax law. As a result, there is potential for the reforms to affect the attractiveness and valuation of water entitlement investment unless specific exclusions or alternative treatment are introduced through subsequent legislation or consultation.

Waterfind has undertaken a detailed review of the 2026-27 Federal Budget, including the Budget Papers and Portfolio Budget Statements relevant to water and Basin reform.

To register interest in receiving Waterfind's full Budget analysis and commentary, please complete the form below or contact Waterfind directly.

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