A maze of levee banks, channels and dams is stealing water from NSW's flood plains and threaten to undermine the $10 billion Murray-Darling Basin rescue plan.
A year-long study by a leading wetlands expert also says environmental water stolen on the flood plain that is home to the iconic Macquarie Marshes has already caused enormous environmental damage.
The report says inappropriate development has continued for decades, despite guidelines on flood plain development, an official cap on water extraction, and the marshes being listed as a wetland of international significance.
Its authors say State and Federal governments have turned a blind eye to water theft through flood plain harvesting.
In what is claimed to be the first comprehensive analysis of flood plain development on any river in the Basin, Celine Steinfeld and Richard Kingsford from the University of NSW, have used satellite imagery and aerial photography taken between 1949 and 2005 to identify development on the lower Macquarie.
On nearly 5000 square kilometres of flood plain between Warren and Carinda in north-west NSW they found more than 2000 kilometres of earthworks, some which are diverting water away from the environment.
Professor Kingsford said: "Most of the levees and constructed channels are legal, although often guidelines to maintain free passage for floods have been breached. While the earthworks on the Macquarie flood plain may not be illegal, taking part of the share of environmental water is a very different matter."
One of the most damaging structures in the marshes, the Northern Bypass Channel, is operated by the State Government agency State Water.
It was built in the early 1970s to keep water out of the north marsh nature reserve and deliver stock and domestic supplies to landholders.
The State and Federal Governments are spending $400,000 on an audit of development on the Macquarie flood plain.
The NSW Minister for Water, Nathan Rees, said the Government was clamping down on illegal diversions.
"We will not tolerate water theft," he said.
"Any unlawful structures not already under investigation will be identified through the audit, which should be completed by the end of the year. Any non-compliance will be acted upon."
The Federal Minister for Water, Penny Wong, said: "We need to make sure we have strong compliance and enforcement measures in place to deal with illegal diversions."
The report identifies earthworks on grazing and irrigation land, but says most of the development has taken place in irrigation areas.
"Most development of earthworks occurred between the 1980s and 1990s," the university report says.
"There was evidence of increased development subsequent to the implementation of the Murray-Darling Basin Cap in 1995, designed to halt further diversion of water.
"Earthworks alienated large parts of the original flood plain and … in the northern part of the Macquarie Marshes, one-third of river redgum sites were dead due to upstream river regulation, abstraction and drought.
"Earthwork developments, such as those identified on the Macquarie River flood plain, are widespread on the rivers of the Murray-Darling Basin. Growth has largely come because of lack of government policies, regulations or enforcement."
Professor Kingsford, who has been studying the marshes since 1986, said there was still an old-fashioned view of water management that concentrated on the main river channel and ignored flood plains.
"There's no recognition that these rivers are much more complex," he said.
"The whole flood plain issue is just a massive legislative black hole.
"The water used to be unimpeded going across this [Macquarie] flood plain.
"Now … it's almost like a maze. It's very difficult for the water to get through.
"You can't deal with the desecration of the Murray-Darling Basin and not deal with the flood plains."
The report uses publicly available information and cost $20,000.
Most of the expense went on hiring a helicopter to check the satellite imagery.
Professor Kingsford said an environmental flow for the marshes was released from Burrendong Dam in late 2005 and "just disappeared down people's channels".
He fears that unless flood plain harvesting is tackled, the billions of dollars about to be spent returning more water to the environment in the Murray-Darling Basin will be similarly wasted.
A State Government flood plain harvesting advice paper stresses that the Murray-Darling Basin Cap "applies to all water diverted from inland NSW catchments and rivers … flood plain harvesting can no longer be left outside of the State's water management and compliance system."
A lower Macquarie Valley flood plain management plan that took years to develop went on public exhibition more than a year ago but has still not been gazetted.
A consultant's report drawn up to help develop that plan identified more than 150 "hot spots" like levees and channels - most on private land - that had to be dealt with to improve floodwater flows.
Between them, the State and Federal governments have allocated just over $200 million to save NSW wetlands like the marshes by buying back water allocations and doing flood plain engineering works.
Nearly 14,000 megalitres of water allocation have so far been bought from irrigators on the Macquarie.
State Water acknowledges the Northern Bypass Channel is a problem and wetland recovery money is being used to look at alternatives.
Tony Wass is a cotton grower and chairman of Macquarie River Food and Fibre, which represents about 600 irrigators.
He said that if water was sent to the right areas of the marshes and marsh graziers did not use earthworks to steal water, water would not be an issue in the marshes, because they were still getting 85pc of the historical average flow.
Irrigators were being victimised, he said, by a "unholy alliance" of environmentalists, graziers, scientists and government agencies.
Mr Wass said he would "be very happy" for any official to inspect the levees and channels on his land because they were not illegal and did not steal flood flow.
"We have levees to keep water out," he said.
"We have them to protect our land from floods."
Under the draft flood management plan, he said, computer modelling showed a greater percentage of floodwater going to the marshes than under natural conditions.
Mr Wass said consultation had also seen the mass of hot spots identified on private land reduced to "probably a dozen".
Amy Hankinson, from the Inland Rivers Network, released a report in June last year alleging water theft from the environmental flow that went down the Macquarie in 2005, but is unaware of any prosecutions.
The policing of flood plain development was inadequate, she said. "They have allowed this development to continue, and everyone's losing out because it affects the security of everyone's water licences - irrigators and the environment. [Flood plain harvesting] remains one of the biggest loopholes in water management in NSW.
"The Government doesn't know what's out there [on the flood plains], how much [water] is being taken, and it's time they dealt with it."
Ms Hankinson said she hoped that after years of State Government inaction, the new Federal Government would step in to help tackle flood plain development.
* The UNSW report is available at the Wet Rivers website.
SOURCE: Sydney Morning Herald.