Changes to the controversial Murray-Darling Basin Plan have passed the House of Representatives, setting up a Senate showdown on the reform.
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The laws would put in place a new plan with all basin states, except for Victoria, after it was revealed the old agreement was not on track to meet its water recovery targets.
The bill passed the lower house 85 votes to 50.
The original proposal aimed to return 450 gigalitres of additional water to the environment by June 2024, but the new laws would push back the deadline to December 2027.
The Murray-Darling plan outlines the amount of water that can be taken from the basin each year, while allowing for an environmentally sustainable amount to remain.
While the laws passed the lower house, the coalition and Greens have criticised the proposal, meaning its passage through the Senate is uncertain.
Environment Minister Tanya Plibersek said the new plan would allow for more money and accountability for the scheme.
"With these changes, we're opening up the full suite of water recovery options we'll be able to invest in," she told parliament on Wednesday.
"Water purchase is never the only tool in the box, it's not the first tool at hand, but it has to be one of them."
The government has faced criticism for the proposed voluntary water buybacks as part of the scheme.
Water buybacks allow farmers to sell their water directly to the government, but have been criticised for their ability to distort water prices and drive up the operating costs of farms.
Nationals leader David Littleproud said the new plan would be "egregious" and traumatic for regions across the basin.
"Those three million people that live up and down the basin, their future has just been ripped away with the stroke of a pen by reckless ideology," he said.
As part of the legislation, an annual progress report would be carried out to show whether water recovery targets were being met.
Ms Plibersek said the new water plan was needed due to drier than expected conditions forecast in coming months.
"Over the last month we have had a really stark reminder of just why it is necessary to deliver the Murray-Darling Basin Plan," she said.
"This next El Nino cycle means less rain, more extreme heat or bushfire risk and more pressure on our ricers and on our farmers."
Independent MP Helen Haines put forward amendments that would increase accountability measures for the river plan.
"If additional water is to be purchased, it must be from where it is most effective rather than from where it is easiest," she said.
"What is needed are consistent, independent and publicly available accounting processes to ensure the actual water savings for projects match the promises made."
Australian Associated Press
