A Senate committee examining whether to lift the current cap on water buybacks has heard evidence that it would be cheaper to buy more water from farmers and then inject savings into rural communities to create other types of jobs than opt for water-savings projects – but the federal government has never explored the option.

The committee is examining legislation, backed by Labor, the Greens and independents to repeal the cap that prevents more than 1,500 gigalitres of water being bought back from agriculture to assist the environment.

Instead, the government wants the balance of the 2,750-gigalitre target for environmental water to be achieved through efficiency and on-farm projects, in order to avoid what it says will be serious economic impacts of withdrawing water from farms in rural areas.

But under questioning this week, departmental officials said they had not looked into whether it would be more efficient to invest in basic services such as education, health or other activities in affected regions, rather than pour money into “supply and efficiency measures” which include projects such as lining irrigation channels to reduce evaporation.

“It’s a gaping ‘waterhole’ in the government’s due diligence and policy,” said Centre Alliance senator Rex Patrick.

Evidence presented to the committee shows that the cost of past river “infrastructure projects” has come in at 2.7 times more per megalitre (returned the river) than simply buying back water entitlements, and could be even higher, depending on accounting methods used.

“On the latest numbers from the Australian government data that’s available, the difference is approximately $5,400 per megalitre for water infrastructure subsidies versus just over $2,000 per megalitre for the purchase of water entitlements from willing sellers,” Prof Quentin Grafton, from the Crawford school at ANU, told the committee.

The committee heard this week that a study by professorial fellow Glyn Wittwer showed that spending on health, education and basic services produced three to four times more jobs than the same level of expenditure on irrigation infrastructure investment.

Both the Department of Agriculture and the Murray-Darling Basin Authority conceded they had never examined that approach.

The first assistant secretary of the agriculture department’s water division, Paul Morris, said government policy was to “focus on infrastructure”.

“I find this almost unbelievable and most irresponsible,” Patrick said. “The government has a low-risk option that creates more jobs and it’s not taking it. Indeed, it hasn’t even investigated it”.

The difference between buying back water and efficiency projects is looming large in water policy because the next stage of the Murray-Darling basin plan relies much more heavily on efficiency projects to achieve 605GL of water for the environment.

Most of the easier projects have already been implemented, meaning that governments will now have to back more risky and untested projects.

One of these is the Menindee Lakes project put forward by NSW, which aims to save 105GL by reducing evaporation. This involves shrinking the lakes and managing them differently. The project has been heavily criticised for its lack of work on environmental impact, particularly in the wake of the fish kills in the Menindee Lakes area.