Transformation of the Australian Public Sector and Environmental Accounting Practices: The Case of Water in 2001

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This paper analyses a case study undertaken in 2001 of a Victorian public sector water utility to examine the implications of public sector 'modernisation' reforms of the 1980s and 1990s for the adoption of environmental accounting (EA) procedures within the Victorian water industry. Legislative reforms have resulted in the allocation of overhead costs for the purpose of segmented reporting and to measure the 'full cost' of departments. This was consistent with the "managerialist", "marketization" and "strategic" phases of public sector 'modernisation' reforms, but did not measure the full economic (environmental) cost. The application of full cost recovery for the purpose of efficiency was further evidence of the impact of public sector modernisation reforms but did not extend to the recovery of externalities. Private environmental costs were traced and integrated into direct cost categories, consistent with the philosophy of managerialism. Costs were measured for the purposes of promoting the contracting out of selected services and functions. There was limited adoption of environmental accounting practices, due to the absence of environmental accounting measurement guidelines. Staff interviewed recognized the importance of environmental issues, but were yet to appreciate the benefits of adopting EA practices. Subsequent to the case study, the Victorian government introduced legislation that required water authorities to make provisions for environmental contributions, a step towards accounting for environmental externalities. This was the beginning of the "sustainability" phase of public sector 'modernisation' reforms.

Keywords Australian public sector reform; Water industry; Managerialism; Cost Recovery; Externalities; Environmental Accounting.


An accounting for water in 2008 is recognized as a critical component in the management of water by both Commonwealth and State governments in Australia (NWC, 2005; VGDSE, 2006). The Commonwealth of Australia National Water Commission (NWC)2 has identified an integral role for accounting of water to ensure that water is provided to meet environmental requirements that enable the building of trust and confidence about water management in the community (NWC, 2005). At a state government level, the Victorian Government Department of Sustainability and the Environment (VGDSE)3 has highlighted that improved systems and procedures for accounting for water are essential for a high degree of management accountability (VGDSE, 2006). The recognition of the importance of accounting for water was also emerging in the period leading up to 2001. In 1994, the Council of Australian Governments (COAG) recognized a future role for environmental accounting (EA) due to the need to address the economic, environmental and social implications of future water reform (NCC, 1998 p.103). In 1998, an OECD (Organisation for Economic Co-operation and Development) evaluation of Australia's environmental performance recommended that Australia increases the internalization of environmental costs4 into resource use (OECD, 1998). Within Victoria, the Parliament of Victoria Environment and Natural Resources Committee recommended that additional work was required into the full accounting of the costs and benefits of re-use of urban waste-water due to the associated environmental benefits (The Parliament of Victoria, 2001).

By 2001, Victorian water authorities were therefore beginning to account for the environmental impacts of their operations due to recognition of the importance of EA by COAG, the OECD and the Parliament of Victoria, whilst having experienced significant "modernization" changes that emphasized efficiency and cost recovery. The motivation for this study is to provide an understanding as to the implications of modernization in the public sector for accounting for water within the Victorian water industry. Ball and Grubnic (2007, p. 258) highlight the need for research that examines "how the regulatory frameworks under which the public sector operates can be changed so that sustainability accounting is integrated into mainstream accounting". …