Australia government moves to head off water scandal ahead of election

By Colin Packham

SYDNEY (Reuters) - Australia's government moved on Tuesday to head off a potential scandal over state water purchases that has fuelled opposition allegations of improper spending weeks before a general election.

In August 2017, the government paid A$78.9 million ($56.2 million) for 28.7 gigalitres of water entitlements from Eastern Australia Agriculture, a company founded by Energy Minister Angus Taylor and based in the Cayman Islands.

The purchases were part of a water market which sees the government buy water entitlements from farm owners to restore the Murray-Darling basin, an important ecological area home to 40 percent of Australia's agricultural production.

The opposition Labor party has highlighted the deal in its campaign to unseat Prime Minister Scott Morrison on May 18, arguing that it was an improper use of government funds.

"You don't pay Versace prices for water that you get from the reject shop," said Tony Burke, a Labor member of parliament.

Seeking to draw a line under the affair, Minister for Agriculture David Littleproud said on Tuesday he would ask for an audit of all government water purchases since 2008.

"I'll be asking the auditor-general to look at all purchases of all political persuasions over the last period since 2008 to make sure that we can give confidence to the community," Littleproud told reporters in Tamworth, a rural city 405 km (251 miles) north of Sydney.

For his part, Taylor said he received no benefits from Eastern Australia Agriculture after leaving the company in 2009.

"I took no financial benefit from any transactions or profits of the company," he said in an emailed statement.

Morrison's conservative coalition is trailing Labor in opinion polls in the final weeks of the campaign.

The prime minister has tried to frame the election as a referendum on the government's record of financial management. It has promised tax cuts for low- and middle-income earners, and projected the first budget surplus in more than a decade.

"Morrison has to stay on message, he can ill afford to be forced on the defensive on issues like this that are potentially very damaging," said Hayden Manning, professor of political science at Flinders University.

(Reporting by Colin Packham; editing by Darren Schuettler)