The National Water Commission’s biennial report on water reform, released on Friday, may be one of the most dispiriting government reports ever compiled.

Water reform has been reduced to a crawl across Australia, and state bureaucracies are the worst offenders. Meantime, river systems are collapsing and regional communities suffering. If you ever want an indictment of the Australian approach to federalism, this is it. I dare anyone to read it and not conclude that the States need to be abolished forthwith.

Not that the Commonwealth doesn’t have its share of responsibility. Penny Wong seems happy to spend money buying general security Murray-Darling Basin water entitlements and trumpeting it as a win for the system, but the hard work of getting the states to meet the commitments they signed up to under the National Water Initiative five years ago seems beyond her.

It’s hard to pick out what’s the worst thing in the Commission’s report. Is it that, despite a year and a half of effort, Commonwealth and State officials can’t agree on the meaning of terms like “overallocated” or “environmentally sustainable”? Is it that, five years on from committing to develop and implement plans for every system being allocated, no State has actually done so? Or that the ones they have developed have basic omissions like, say, whether the system is currently over-allocated, the impact of climate change or what the actual purpose of the plan is and how you can tell if it’s being achieved?

Is it that only the South Australians actually bother to find out how much illegal water extraction is going on? Or that interstate bickering has meant the new Murray-Darling Basin Authority, meant to be the new, more effective manager of the Basin under the deal thrashed out by COAG last year, has got off to a “disappointingly slow start”?

My pick is the Commission’s finding that the number of over-allocated river systems is the same as it was a couple of years ago. We haven’t made any progress on the most basic measurement of water reform.

These are fundamental failures at the bureaucratic level, as state officials cling to their own parochial interests, and their political masters lack the interest or ability to put a bomb under them. This is the “break of gauge” mentality at work. The States don’t even share water data, or have a process for doing so if they wanted to.

Let’s be clear here: the National Water Commission is not exactly the most radical of agencies. It was established by the Howard Government, and it is headed by Ken Matthews, who ran Transport and Regional Services under several National Party ministers. Matthews himself is from a rural background. The Australian Conservation Foundation it ain’t. But its criticisms of governments’ failings on water policy and environmental water management are savage. And the need for action is becoming increasingly urgent.

“Our water is still in trouble,” Matthews told a conference last week. “But climate change has now raised the bar on water reform.”

In effect, on environmental management, we’re going backwards.

The Commission also remains deeply concerned about the impediments to a fully-operational water market. This is, quietly, a significant micro-economic reform, but we still remain in transition between a government-controlled water allocation system and an effectively-functioning market – and governments don’t want to let go. Trading caps remain in place. Governments undermine investor and irrigator certainty and delay processing transactions. There is almost literally a break of gauge on the rivers – there is still no interstate trading of water entitlements. Some States haven’t even finished unbundling water entitlements from properties.

It’s the same story in urban areas. Governments continue to regulate and subsidise rather than let price signals work. Damaging water restrictions are preferred over pricing mechanisms. Governments continue to give grants for water infrastructure rather than fund them through user charges. Urban water policy remains captured by a desire to coddle consumers.

The Commission is also critical of the provision of assistance for irrigation infrastructure which, in its view, distorts the decision-making process for investors and irrigators. In a way, it needn’t worry. The Commonwealth $3.7b irrigation infrastructure investment funding, intended to significantly improve the efficiency of irrigation, allowing some of the benefits to be returned to the environment, is mired in – guess what – Commonwealth-State bickering, with officials unable to agree on projects to be funded under the massive program, supposedly a critical part of the water reform process.

Penny Wong has so far shown no inclination to use the Commonwealth’s moral and financial authority to bang State heads together on the funding for irrigation projects or, for that matter, the broader water reform process. If only they were Liberal State Governments. You could bet Wong would never stop talking about how water reform was “can I say, a question of leadership” for her political opponents.

If you’re wondering which Minister has too much on her plate, the becalmed national water reform process suggests Penny Wong might be a candidate.