THE Productivity Commission has warned the government’s plans to set caps on how much water can be taken from the Murray-Darling Basin could focus too heavily on the environment at the expense of regional communities.

The commission has recommended changes to the way extraction caps will be determined. ”The commission is not arguing against the case for allocating more water for the environment. This is patently necessary to improve the health of the basin’s environment,” the report states. ”But the potential now exists for one misallocation of resources (too little water for the environment) to be replaced with another (higher than necessary social and economic cost).”

A day after saying he used Productivity Commission reports as toilet paper, opposition water spokesman Barnaby Joyce said yesterday he has a ”tendency to agree” with the commission’s findings on caps.

The commission has also recommended the government rethink its $5.8 billion water saving infrastructure program.

The commission says water buybacks and caps on extraction are more effective ways to return water to the river system.

The government has charged the Murray-Darling Basin Authority with developing extraction caps as part of the basin plan, due to start in 2011.

Under the 2007 Water Act the authority sets caps based on how much water will be needed to protect ”key environmental assets” in the basin, such as wetlands, but must also consider human needs.

Senator Wong yesterday ruled out changes to infrastructure spending and said the government believes it is crucial to consider social and economic effects in setting extraction caps. “By investing in irrigation infrastructure, and by purchasing water from willing sellers, the government is smoothing the transition for irrigation communities in anticipation of new, lower limits on water use under the Basin Plan.”

Speaking to The Age Senator Joyce said he supported projects to pipe water from the north as a solution to water shortages in the basin. ”With the money spent on school halls we could have moved water from the north to the south and had change left over,” he said.

The Australian Conservation Foundation’s Amy Hankinson said the Water Act already takes a balanced approach and caps were needed to return the river to environmental health.