The water industry Australia-wide is in transition and reforms of the industry present one of the most challenging and complex public policy issues for governments and communities to grapple with. Now under the scope of national competition policy, reforms to the water industry have been described as potentially one of the most rewarding of all competition reforms in terms of favourable economic and environmental outcomes, if implementation of the reform package is timely and complete.

At the core of recent water reforms in NSW is the need to ensure that adequate water remains within the river system to maintain river health. It is now recognised that the flow regime of a river is a key driver of river condition. The regime and variability of flow at various scales have been recognised as an important determinant of river habitat and biota, and Australian rivers have some of the most variable natural flow regimes in the world. The NSW Department of Land and Water Conservation notes that water quality and river flows are fundamentally linked. Yet it is apparent that in many communities water released from storages for environmental flow reasons is regarded as wasted.

Results from the National Land and Water Resource Audit program show that change in the condition of Australia's river basins is most strongly linked to: intensity of land use; increased nutrient and sediment loads; and loss of riparian vegetation. The Audit showed that only 3 percent of rivers in NSW were classed as largely unmodified, with 18 percent extensively modified.

One of the basic principles of contemporary water management is that of water management planning. The Water Management Act 2000 provides for this through a consultative process, largely through advisory committees. These Committees have been empowered to develop riverine water sharing plans, which determine allocations of water for the environment and users. The Act also outlines water management principles and a State Water Management Outcomes Plan, which individual water sharing plans must respect.

The public consultation process held after the release of the draft water sharing plans has attracted considerable interest and publicity in the community. The NSW Farmers' Association predicted large job losses due to the proposed water reforms, a claim strongly denied by the Minister. After sustained publicity about the predictions of extensive rural job losses due to the water reforms, on 12 July 2002 the Minister agreed to the formation of a Socio-economic Review Committee to look at the concerns farmers and irrigators had expressed during the water reform process.

A key issue in the current controversy is about property and water rights. These issues arise from the 1994 Council of Australian Governments agreement on water reforms, which stated that water allocations or entitlements should be separated from land title, and that there should be water allocations for the environment.