MJM, I think your question should be, "Why build more dams instead of recycle toilet water?"
The adverse effects on ecology due to dams are many and you only have to read about the environmental issues the Murray-Darling Basin faces .
http://www.environment.gov.au/water/...sin/index.html
Unfortunately, the government always looks to the short term since they are only in office for 3-4 years. They are more about what they can get out of office in the short term personally instead of what they can offer us all for the long term.
I also wondered why they bothered building the desal plant in Sydney when they could have just provided substantial rebates for the installation of water tanks. Who knows where they get their advice from.