Australia needs to diversify its sources of funding in order to pay for the infrastructure we need. Value capture can help fill the gap, but we need to be realistic about the role it can play.

Australia needs more infrastructure investment to support our future economic growth.

We need to ensure the infrastructure networks in our cities and regions can meet the changing needs of our growing communities and support national productivity in a 21st century economy.

If we are to meet our future growth challenges, Australia’s largest cities need ‘turn up and go’ public transport services, similar to New York, London and Berlin.

And future infrastructure investment must focus on supporting access to and growth in our regions with projects that deliver the most return nation-wide. But we must find a way to pay for this vital infrastructure.

Value capture is a powerful tool for governments. It can help to stretch public funding for infrastructure further, and make the infrastructure funding mix more equitable by seeking more from those who benefit most from new infrastructure while reducing the burden on other taxpayers.

Infrastructure Australia’s recent advisory paper, Capturing value: Advice on making value capture work in Australia, cautions that we need to be realistic about the role value capture can play.

Ultimately, funding for public infrastructure is available from only two sources: beneficiaries and taxpayers. So while value capture is an important tool for governments in the infrastructure funding mix, it is important to keep its potential role in perspective.

Beneficiary pays cannot fund all the infrastructure Australia needs. Even if governments could collect the full value uplift from those who most benefit from new infrastructure investments, in most cases this would still not cover the full cost of new or upgraded infrastructure nor cover the ongoing maintenance and operational costs.

That is why governments must be realistic in their expectations for value capture’s potential role in funding projects.

Poorly designed or implemented value capture runs the risk of taking more than a fair share and unnecessarily increasing project financing and administration costs. It could also introduce inefficiencies in the housing, employment and investment markets.

There are a range of value capture mechanisms that can provide separate solutions to the infrastructure funding challenges faced for each publicly-funded infrastructure project. These mechanisms are outlined in IA’s advisory paper.

Fortunately, the most efficient approach to capturing value already exists, and that is land tax. A broad-based land tax could provide governments with a reliable stream of funding that efficiently and fairly reflects the productive value of land.

Broadening the land tax system, in addition to the removal of other inefficient charges such as stamp duties, could provide a fairer, more efficient way of capturing land value uplift.

The potential benefits of land tax reform are wide-reaching. In addition to creating a sustainable source of infrastructure funding, it would support housing availability and affordability, transport network efficiency and long-term land-use planning.

Clearly, value capture is important topic of debate. But discussion on value capture shouldn’t just be about getting specific projects off the ground.

Rather the question should be, how we can use value capture to make our infrastructure funding mix fairer and more sustainable, and deliver better infrastructure services for all Australians?