LANDOWNERS affected by water catchment development regulations say new Victorian Government guidelines have failed.

Its comes after the Victorian Civil and Administrative Tribunal last week knocked back a planning permit for a house on 16ha of land in the Macedon Ranges Shire.

The ruling was the first test of the Coalition Government’s new guidelines for building in potable water catchment areas released in November last year, which promised “a more practical and sensible approach.”

Spokesman for Landowners Action Group Matt Gorman said the decision was inevitable as VCAT was ‘simply enforces the arbitrary 40 ha rule’ outlined in the Government guidelines.

“Regardless of all other relevant factors, it is virtually impossible to obtain a planning permit for a dwelling on an unsewered lot in a proclaimed water catchment if the lot size is not at least 40 hectares,” Mr Gorman said

“While the so called catchment guidelines were revised in November 2012, nothing much really changed.

“The Landowners’ Action Group remains sceptical that the processes put in place at that time will achieve anything of substance to resolve the current crisis.”

He said landowners were not consulted about the new guidelines and the impact on rural communities and small-scale agricultural businesses needed to taken into account.

“The narrow interests of water authorities need to be balanced against the broader needs of the community.” Mr Gorman said.

“(The guidelines) should pay more than just lip service to the other important considerations besides water quality protection in rural planning, such as maintaining rural populations and facilitating economic development.”

The group called on the Government to revise the guidelines and scrap the 40ha rule plus provide compensation to landholders affected by the policy.

Water Minister Peter Walsh said the case showed the importance of local councils working with relevant water authorities to develop Domestic Wastewater Management Plan, which allows exemptions under the new guidelines.

"The new guidelines have opened the way for sensible development, and local councils must now work collaboratively with their local water corporations if they are to take advantage of this more practical approach,” Mr Walsh said.

"These guidelines replaced previous restrictive rules introduced by the former Labor Government in 2009 which saw many landowners unable to develop their land if it was within an open potable water catchment area, even though the developments did not threaten water quality.”