Infrastructure Australia delivers reality check on value capture

The release of ‘Capturing Value: Advice on making value capture work in Australia’ by Infrastructure Australia is a reality check on the ability of value capture to fund Australia’s infrastructure gap.

“This is a considered report by Infrastructure Australia which rejects the idea that value capture is a magic pudding which can solve the country’s infrastructure needs”, said Ken Morrison, Chief Executive of the Property Council of Australia.

“The report finds the relationship between property values and infrastructure is often questionable, that value capture is likely to make only a modest contribution to project costs, there are big risks to poorly designed value capture and many existing property taxes already capture value for governments.

“Australia has a real infrastructure shortfall, but it is clear from this report that poorly constituted value capture carries real economic, social and political risks for governments, business and the community.

“Governments need to clearly differentiate between good value capture and bad value capture.  Poorly designed value capture simply means ill-thought through property-based taxes that risk destroying much of the economic value generated by new infrastructure.

“This report is a reality check for governments who are promoting the concept of value capture without ruling out new property taxes.

“This report recognises that economic uplift is already captured across Australia through various land tax and rating systems.

Mr Morrison said the Property Council disagrees with the Report’s finding on Tax Increment Financing and hypothecation models.

“The report’s finding doesn’t recognise that our cities are full of underutilised infrastructure or that land use and infrastructure planning are often not aligned.

“Tax increment financing creates a mechanism to bring the two together which then creates more tax revenue to fund the infrastructure asset.  It is a tried-and-tested model that works overseas.

“It involves the use of bonds-based financing to seed the initial infrastructure designed to unlock new development, economic activity and create real value.

“Importantly, it then uses the existing tax base, rather than new ones, to repay the bond – and only captures value as it actually occurs.”

Mr Morrison said he would add a word of caution to proposals to that seek to promote a ‘stamp duty, land tax swap’.

“Stamp duty is a notoriously bad economic tax and we welcome IA adding their voice to calls to see it abolished – but the reality is that it is unlikely to be politically feasible to raise this amount of money from a broad-based land tax.

“We commissioned Deloitte to undertake research on this and to replace stamp duty with a broad based land tax would result in a family living in a $1 million property paying $100 a week in land tax”.

“The ACT Government tax-swap experiment has already identified there is a limit to what people and businesses can and will pay when it comes to land tax. 

Mr Morrison said the report by Infrastructure Australia was a significant contribution to the debate about how we fund Australia’s future infrastructure needs.

Media contact:  Paul Ritchie  |  E pritchie@propertycouncil.com.au