Three Waters: Rapids ahead as entrenchment leaves a bruise

Analysis - And so this is Three Waters, and what have we learned? Not much, on several fronts, it would seem.

The central piece of legislation behind the government's ambitious restructuring of water services has just passed its third reading under extended sitting hours - but the self-admitted entrenchment "mistake" has added a sour taste to an already bitter brew.

The various establishment groups will now be getting on with the job of setting up the transfer of water services from a multitude of councils to four large new purpose-built organisations.

But if National wins government in next year's election, it's promised to completely scrap the laws before the new entities take over in 2024.

That would take it back to the drawing board on a challenge nearly all councils agree they face: funding the costly repair, upgrade and fortification against climate change of New Zealand's large and inconsistently maintained water infrastructure.

Entrenchment debacle leaves behind a divided caucus

Labour on Tuesday was in the absurd position of having to seek the opposition's support to remove a clause giving more protection against the privatisation of water assets. This was entirely self-inflicted.

Parties across the House - to varying degrees - say they want to keep water infrastructure assets like pipes and treatment plants in public ownership, and it would be hard to find even one Labour MP who would oppose that position.

The real conflict here is between two principles: protecting against the sale of water infrastructure on the one hand; protecting long-held constitutional norms on the other.

Those norms are aimed at providing a fair playing field in elections while leaving flexibility for the government of the day to make the changes it has an elected mandate to make.

Blame games aside, Labour's ranks remain ideologically divided over this - and it's unclear which camp Prime Minister Jacinda Ardern belongs to.

Attorney-General David Parker - the government's top lawyer - has maintained a stance of upholding the constitutional principle.

"The anti-privatisation clause is an inappropriate use of the entrenchment tool, which is why we have brought the amendment to the House today in order to fix what the prime minister has called and what the minister in the chair has agreed was a mistake," he said in Parliament.

His strong comments earlier that day made clear his personal opposition.

"I have been consistent throughout this in all my involvements in the process that entrenchments should not be used in pursuit of policy positions."

He is likely backed in that view by other party MPs with legal backgrounds, and confirmed earlier the same day he was not a minority voice inside the caucus on the issue.

"I'm happy to say no to that, but I don't discuss who said what in caucus or Cabinet."

Green MP Eugenie Sage's amendment - clearly signalled in the select committee's report in November - is a practical expression of that party's view the sale of publicly owned water infrastructure is of core constitutional importance.

It set a lower bar of requiring 60 percent of MPs to support it and - with Labour and the Greens combined - was able to succeed.

Labour initially voted to support it - but now says it was a mistake. Government ministers have refused to clearly explain how this mistake was made.

Local Government Minister Nanaia Mahuta's comments indicate she still supports the Greens' view - even at the expense of breaching constitutional norms, and in opposition to Cabinet colleagues like Parker.

"We have been unable to get cross-parliamentary support for a 75 percent entrenchment of privatisation, and we accept that that is why the government did not put forward an entrenchment clause in the bill as introduced," she told Parliament.

"The mistake that is being fixed is that it is inappropriate - as far as we can see - to take a piecemeal approach to using an entrenchment clause for this particular purpose ... we will, effectively, not use an entrenchment provision in this particular way without further consideration."

No quarter given by the minister, then - even in her speech to vote down the clause that's caused Labour so much political embarrassment - and leaving room to take another crack at it in future.

"I want to reflect on the Leader of the House's indication that, actually, perhaps the Standing Orders Committee needs to consider the basis on which entrenchment clauses should be used to give guidance to lawmakers for matters other than constitutional issues, of which the convention is a 75 percent threshold," she said.

Cabinet papers show Mahuta sought to put a 75 percent entrenchment provision in the law in April, but Cabinet reversed that a month later.

The minutes from May - in Mahuta's name - record the reason for this reversal as a lack of cross-party support, but that was always the case. It was legal advice provided to Parker - saying constitutional norms demand entrenchment must be reserved for core electoral matters - which was new.

Part of the early discussions in Cabinet would have included the political ultimatum an entrenchment clause would place on National and ACT: back these provisions to protect against privatisation or explain why not.

Ardern has repeatedly said she would continue to seek support from opposition parties for securing a 75 percent entrenchment clause: it's possible this has been an attempt to continue this political ploy, perhaps mixed with a genuine aversion to privatisation.

On the other hand, she may share the Greens' and Mahuta's conviction the importance of protecting against privatisation outweighs the constitutional principle of reserving entrenchment for electoral law.

She was certainly quick to label the attempted law change as an error and signal moves to reverse it - leaving her personal feelings on the principles at stake unclear.

Water torture

The 60 percent threshold and the Greens refusing to back down on it meant - embarrassingly for the government - National's support would be needed to get rid of it as Ardern had promised.

National of course obliged, but took the opportunity to pour more scorn on the whole affair. It also gave the Greens the chance to express their disappointment in government for having bottled out.

Labour's been making an effort to save face - talking about the opportunity it gives for conversations about entrenchment and privatisation. Of course, this goes against the need - stated by Parker - to avoid having to test the whether entrenched Acts themselves need to be entrenched to truly provide the protection they promise.

"That's not a legal issue that we ever want to approach in this House," he said.

"On the one side, you would have the people that would say that the legal effect of those clauses is not to bind a future Parliament ... the other is that it does actually have some legal effect that can be given force before the courts. I hope in my lifetime that we never have to explore that boundary."

In the end, the party has heard the cries of constitutional lawyers who opposed the change and brought it to national attention.

Entrenchment appears set to be re-examined by the Standing Orders Committee and that may be healthy for democracy but Labour will be unhappy with the accusations of mismanagement, miscommunication or incompetence the saga has placed on it.

For National, the whole thing has been a pre-Christmas gift, an easy exit from the political quandary posed by refusing to support an ideological position it says it holds.

Leader Christopher Luxon has gone from having to promise media his party would not privatise water assets, to calling for Mahuta's head to roll.

But regardless of his statements and promises, the legislation means water service privatisation remains a possibility for future governments of whatever political bent, if they have the will to defy public opinion.

Rapids ahead

The government likely wants to put this whole thing behind it. But while the main piece of legislation's done and dusted, Parliament has yet to consider the two bills which secure the actual transfer of assets, and economic regulation of the new entities.

Labour still has the majority to push these through, but the opposition isn't likely to miss its chance to twist the political knife.

The election will prove a further hurdle for Labour's project.

National and ACT are ahead in the polls and both parties are promising full repeal and a return to the status quo, along with vaguely articulated plans to work with local government on bespoke solutions. ACT wants public-private partnerships in the mix too.

Both have expressed a lack of confidence in the analysis work done for the government by the Water Industry Commission for Scotland (despite the way it's been painted by some, this did not use Scotland as a model for the solution proposed by the government). With that in mind they may want to do their own further assessment, which is bound to prove costly.

They would retain the regulator, but between that and the new environmental limits set to come into play with the government's Resource Management Act replacement, councils will be struggling to foot the bill.

Those councils have for the most part agreed there is a problem to be solved, but most of their suggestions seem to include some form of increased direct investment from the government - something a National government facing a cost-of-living crisis would be loath to stack into its budgets.

Like a river swollen after a storm, Three Waters promises to throw any future government into roiling currents and hidden snags.