The state government does tax water - through all the authorities that send you a bill each quarter for supply of water to homes, and a sewerage and stormwater discharge cost.
Where is the "green power" going to come from? I doubt there is enough available to power all the current domestic consumers who have been sucked in to paying a premium for "green power". So how is there going to be an excess for the desal plant to run? And how can they guarantee that every little electron supplied has actually come from a "green" source?
I figure you could give every house in Melbourne a 2 or 3 thousand litre tank. Might cost the same as the desal plant, but that's where it ends - no ongoing running costs, no ongoing maintenance costs, no ongoing carbon footprint. The average Melbourne house could harvest more than 100k litres each year. Water your garden to your heart's content. Flush the toilet to your heart's content with water harvested from the rain falling on the roof.
Why can't they build a pipeline from N Qld, or even the Ord River in WA? (They built the Snowy Mtns scheme). Did you know that more water than is in Sydney Harbour flows out of the Ord River dam EVERY DAY. Fresh water going to waste! Politicians are forever saying what CAN'T be done, but have very little to say about what CAN be done.