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Australia’s public sector advisory body for infrastructure has urged caution and careful planning with respect to the application of value capture on significant dollar value projects which receive federal government funding.

In a new report, Infrastructure Australia (IA) said value capture can and should play a greater role in funding our nation’s public assets and urged the federal government to routinely consider ways in which the concept can be applied on projects which receive Commonwealth funding.

Nevertheless, IA notes it is important to be realistic about the role which value capture can play and cautioned that its application cannot alter the basic viability or otherwise of projects from an economic viewpoint.

According to IA, the primary benefits associated with value capture revolve around its ability to increase the available level of funding for infrastructure projects as well as to add greater fairness and equity to the split of funding between taxpayers as a whole and those who benefit directly from the project in question.

Prior to any form of the concept being considered, however, IA argues that long-term planning is needed and that it is important to think carefully about underlying needs and determine which projects best meet those requirements.

Fundamentally, IA says, no application of value capture could alter the economic benefits and costs of a given project in any way.

Around Australia, the concept of value capture has gained increasing attention over the past year as the government has sought innovative mechanisms by which to fund Australia’s public asset requirements.

In essence, the notion of value capture revolves around capturing some of the uplift in property values which occurs within localised areas where new infrastructure such as road or rail infrastructure is put in place and applying this to cover some of the capital cost of the project in question.

This can be achieved through means such as betterment charges, developer charges, leveraging government land, taxes on property transactions, and taxes on land value.

Despite acknowledging that different mechanisms might be appropriate for different projects, IA chief executive officer Phillip Davis said a broad based land tax along with the phasing out of stamp duties would offer one of the best opportunities for sustainable, long term reform.

“A broad-based land tax would involve removing many exemptions to existing taxes on land value, streamlining charging processes and phasing out other charges such as stamp duties,” Davis said.

Consult Australia chief executive office Megan Motto said value capture has proven to be successful overseas and is something which must be considered in Australia if we are indeed to finance the necessary levels of investment in infrastructure going forward.

“Value capture isn’t a one size fits all approach but must play a role in delivering the infrastructure Australia so desperately needs,” Motto said.

 
  • "Value capture" read "Hyper-development" – basically I like the idea of there being a value uplift charge as has been the case in the ACT when change of use concessions are granted. The system has worked well for years, even if a little Canberra developer club friendly. But we are talking a different beast these days. Australia is currently undergoing an infrastructure boom. Get it done, no matter what the cost. There is a whole industry feeding off expert advice and business case justification that these projects make economic sense. The trouble with this is that these business cases are clothed in secrecy. Of the few I have seen the NPV values are so marginal they look concocted. Its always good to be sceptical when you put a politician and a big new project between them and a pot of cash. So why not the "Value Capture" bucket. You can then levy the value capture to pay for marginal if not unviable projects. The public interest in "Better Construction for Less" has gone out the door. The infrastructure food chain gets fat on projects that can only be handed out to a few with IBM like balance sheets – so in this club uncontrolled costs get swept up and passed on to the client – read taxpayer. This includes CFMEU EBA's. Its an insidious circle. So to fund this largess we have value capture from the sale of uplifted property values. The developers are ok with it, they just say well, we need bigger development schemes. Not a problem. Makes employment look good for a while and the stamp duty is a nice top up for state budgets. But everyone pays in the end. I call this "politically transmitted debt' – it will take a power of curing. All the while ordinary taxpayers and the community get no insights into these costs up-front.

  • We have been working on value capture for many years at Curtin and helped set the agenda for how it can be used to generate both funding and financing of rail projects. We were very disappointed in this paper as it does not even refer to major research published in international journals. While difficult, there is an established methodology for doing value capture assessments, called hedonic price modeling. This technique has been used in the past to estimate the land value uplift resulting from the Mandurah Line in WA, and the results have been published in an international academic journal. This study found that the Mandurah Line produced up to a 42% increase in land values over five years compared with the surrounding region. The same methodology has been used to estimate the effects of the Epping to Chatswood rail line. The uncertainty generated by the report makes many of the projects being developed in Australia more uncertain with the private sector than is helpful from such an important body as IA. It is our view that governments can and should aim to recoup a substantially higher proportion of total project cost than 10%, at least in the case of urban rail projects. Even the highly complex London Crossrail project sourced 60% of its original £14.8 billion funding from Londoners and London businesses, through various VC mechanisms. We are planning projects where it is possible to get 100%. But this requires involving the private sector from the beginning of the planning process and conservative transport planners dont like doing that. Its time to change.

Engineering Education Australia – 300 x 250 (expire Nov 30 2017)
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