Australia's national water plan needs a greater focus on the impact of climate change and more input from Indigenous people, a report says.
The Productivity Commission on Thursday released its final report of a review into the national water initiative (NWI), a federal-state reform agreement which began in 2004.
The commission was asked to look at progress towards the goals of the NWI.
It said the plan needed a "refresh" by including references to climate change and Aboriginal and Torres Strait Islander people.
"Since the NWI was agreed, the potentially devastating impacts of climate change on Australia's water resources have become clearer," the report said.
"Recognition that all aspects of water resource management and water service provision will need to adapt in the face of these challenges should be reflected in a renewed agreement."
The report noted capital city populations are projected to increase by 10 million people by 2050.
At the same time, climate projections point to hotter, drier and more extreme weather, particularly in southern Australia.
"This will likely mean material reductions in water availability for most of the country and an increase in the frequency and severity of droughts and floods across the nation.
"And it will accelerate change in irrigated agricultural production. The droughts and water scarcity experienced during the past 20 years are likely to be a harbinger of things to come."
The commission said Aboriginal and Torres Strait Islander people had made it clear that they "aspire to much greater access to, and control over, water resources".
But progress to enable this has been "slow".
The report found states and territories were still in the process of implementing metering policies for non-urban water users.
As well water access and reliability remained an area of concern for some rural and regional communities especially in times of drought.
Part of the overhaul of the NWI, the commission said, should involve each state and territory having three-year rolling work programs, and a comprehensive review of national water policy every 10 years.
In a departure from current policy, the commission recommended the "special provision" for the minerals and petroleum industries should be removed.
Instead, a fit-for-purpose entitlements and access rights regime would consider special circumstances for water use on the basis of the context of that use, which would not be industry or user-based.
Treasurer Josh Frydenberg and Water Minister Keith Pitt noted the report's finding that consistent water planning arrangements and the creation of water trading markets had "established pathways to create a more sustainable balance between consumptive and environmental uses".
They said the report would inform the renewal of the NWI, which is due to be agreed by 2022.