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Use of value capture mechanisms could be compulsory on all projects of certain types which are funded by the federal government, a new paper says.

Launched by Federal Minister for Urban Infrastructure Paul Fletcher at a Property Council of Australia breakfast in Melbourne, the paper outlines a number of options by which the federal government could promote the use of value capture across Australia.

Under one option, the paper said the Commonwealth could make a value capture funding co-contribution a condition of the project receiving grant funding from the Australia government in respect of certain types of projects which are considered to have significant potential for value capture mechanisms to be applied.

The Commonwealth could also require proposals for major projects be accompanied by a land use development plan which demonstrates how the projects will be integrated into strategic plans at a city or regional level.

These plans would not only have to consider value capture funding streams but would need to look at the mix of value capture mechanisms which best capture the willingness of the public to pay for new infrastructure.

The proposals come amid a growing conversation about how Australia can use innovative financing mechanisms to raise necessary finance for major public sector construction projects.

Value capture is a concept whereby part of the uplift in land values associated with major public sector infrastructure projects such as new rail lines or stations is ‘captured’ by taxpayers and applied toward the cost of the project.

This can be achieved via a range of measures, such as taxes or higher rates on properties which are located within a given catchment area or the sale to private developers of development rights above new train stations.

The basic notion is that those who directly benefit from the project most should contribute to a portion of its cost.

That contrasts with the current situation which sees all taxpayers sharing the burden of project funding through taxation even though many will not use or directly benefit from the infrastructure which is being built.

Apart from making value capture compulsory, the paper says other options the federal government could adopt include building a national evidence base of benefits associated with infrastructure projects, developing national methodologies and guidelines to facilitate consistency in value capture approaches, providing up-front financing such as loans which is linked to incremental tax revenues, establishing a specific funding pool for projects which include a value capture element, and stimulating market-led proposals with value capture elements.

On the topic of making federal government funding conditional upon use of value capture, it acknowledges that care needs to be taken when deciding which projects this will apply to.

It also acknowledges that this approach would reflect a re-shaping of Commonwealth/State relations in regard to infrastructure funding.

Fletcher says the government wants to engage with the property sector and the community on the best way forward.

“We are keen for industry and community views on these options and I certainly would encourage a strong response from the property industry as well as other stakeholders,” he told delegates at the Property Council event.

“The paper suggests some options—but if those in the property industry, or other stakeholders, have better ideas, then we want to hear them.”

 
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