Value capture is no "magic pudding" that can solve Australia's infrastructure problems, says Ken Morrison, Chief Executive of the Property Council of Australia.
Infrastructure Australia's report ‘Capturing Value: Advice on making value capture work in Australia’ is a "reality check" says Ken Morrison, Chief Executive of the Property Council of Australia.
“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”, he said.
Value capture involves taxing forecast increases in property prices to pay for new infrastructure, such as road upgrades and light rail. But the report shows the link between new infrastructure and property prices is tenuous.
“The report finds the relationship between property values and infrastructure is often questionable," said Morrison.
"Value capture is likely to make only a modest contribution to project costs," he said.
Morrison warned that poorly designed value capture carries great risk for the government.
“Poorly designed value capture simply means ill-thought through property-based taxes that risk destroying much of the economic value generated by new infrastructure," he said.
“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."
Morrison said the report recognises that land taxes already capture any economic uplift created by new infrastructure.
Morrison said the Property Council disagrees with the report’s finding that Tax Increment Financing was not appropriate in Australia.
TIF allows governments to pay for infrastructure by borrowing against forecast increases in property taxes and other revenue.
Morrison said that TIF can create more tax revenue to fund infrastructure, as "underutilised infrastructure" and land is unlocked to drive economic activity.
"It is a tried-and-tested model that works overseas," said Morrison.
Morrison cautioned against proposals for 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," he said.
Property Council research, conducted by Deloitte, found that replacing stamp duty with a broad-based land tax would result in families living in a $1 million property paying $100 a week in land tax, said Morrison.
See also:
How new transport developments affect property
Badgerys Creek - what does the new airport mean for real estate?