Victorian Property Council Slams Infrastructure Funding Proposals

Monday, October 17th, 2016
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A property industry lobby group in Victoria has hit out at suggestions regarding value capture mechanisms which are being floated as a method by which the state government could raise money from which to fund critical infrastructure projects.

Responding to the release of modelling of a range of value capture mechanisms on key infrastructure projects by Infrastructure Victoria, the Victorian division of the Property Council of Australia said the concepts put forward would push up house prices, rents and commercial operating costs. They also argued that the ‘unimaginative’ proposals would introduce new taxes on businesses in Victoria and cost the economy jobs.

“If implemented, these reforms will result in property owners having the same asset taxed six different ways,” Property Council of Victoria executive director Sally Capp said. “Moreover, thousands of property owners will face huge tax increases which will threaten business viability.

“We are calling on Premier Andrews to immediately rule out these new taxes, as he did for road pricing.”

Capp’s comments follow the release of modelling by Infrastructure Victoria aimed at demonstrating some of the methods through which value capture mechanisms could be used to help raise funds toward the cost of significant infrastructure projects.

Value capture is a concept whereby part of the expected uplift in land values in property within a given catchment area as a result of new infrastructure being put into place is ‘captured’ by taxpayers and applied back toward the cost of building the infrastructure in question.

Proponents of the concept argue that it is an equitable form of funding as it invokes a funding contribution from those who benefit from the infrastructure most directly.

In its modelling, the infrastructure body looked at options for six different projects to illustrate some of the ways in which different mechanisms could be applied across sectors such as transport, health, housing and education.

The projects include Melbourne Metro 2 rail project connecting Clifton Hill in the east to Newport in the west via Parkville, the Outer Metropolitan Ring Road linking Werribee in the south-west to Thomastown in the north-east, rezoning industrial land nearby a train station, a major hospital redevelopment, a school in a growth suburb and public housing redevelopment.

Taking the example of the Melbourne Metro 2 Project, it suggests funding could be raised through four methods, including:

  • A developer contribution applied to new residential apartments at a flat rate of $3,000 per apartment and new commercial floor space at $30,000 per square metre development within 1,000 metres of rail corridors
  • A ‘betterment levy’ charged at an average of $435 on residential properties and $21 and $10 per square metre for commercial and industrial properties within 1,000 metres of rail corridor which would be paid each year for 30 years
  • A betterment levy which in the first year would average $184 for residential properties and $6 each on commercial and industrial properties to all local government areas that contain the MM2 alignment, including the City of Melbourne
  • The sale of development rights over and around new stations.

In its modelling, IV suggested that six, 25 and one per cent of the cost of the project could be recouped using developer contributions, betterment taxes and sale of property rights respectively.

In a statement, Infrastructure Victoria chief executive officer Michel Masson said value capture was not only equitable but could help generate more funds from which to deliver significant dollar value projects.

“Rather than expecting all taxpayers to cover the full cost of new infrastructure such as a train station, we see an opportunity for property owners and businesses that stand to benefit financially from a project to make a contribution to that project being built,” Masson said.

“We also think individuals and businesses who receive significant financial benefits from planning decisions made by government should also contribute to providing infrastructure the community needs.

“Value capture is not a silver bullet, but we think it can play a bigger role in helping to fund the infrastructure we will need in the future.”

But Capp says the proposals are not necessary and impose an additional impost on an already heavily taxed industry.

She said driving economic growth was the best way to generate new project funding as this drove tax revenue.

“The State Government is flushed with cash. Record budget surpluses, surging land tax revenue and a port lease deal $3 billion dollars greater than forecast means new taxes cannot be justified,” she said.

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