The release of a Federal Government discussion paper into value capture by the Minister for Urban Infrastructure at a Property Council breakfast today is welcome, and he is right to warn about the dangers of using 'value sharing' as a ruse for tax increases.

“Everybody wants to see more infrastructure being built in our cities, but we have to be careful that we are not creating still more taxes which add to business costs and worsen housing affordability”, said Ken Morrison, Chief Executive of the Property Council of Australia.

"We welcome many of the ideas in the discussion paper and take heart from the Minister's comments, but governments need to firmly rule out new taxes under the cloak of value capture.

“We agree with the Minister’s comments today that ‘value capture should not be code for increasing the cost of housing by placing an extra tax on landholders’.

“Minister Fletcher’s willingness to consider tax increment financing is a positive step. Tax increment financing is a tried and true policy solution used in the United States and the United Kingdom that hypothecates additional tax revenues in geographic areas to help pay for major infrastructure investments.

"The discussion paper creates a framework to discuss how infrastructure gets funded, recognising that most of the levers are at state and local government levels.

“We need to put infrastructure and land use planning together, as well as consider more innovative ways that infrastructure can be delivered to make that happen.

"Australia will need a raft of city shaping investments over the coming decades and we welcome the Minister's focus on these issues.

Mr Morrison said the dangers of an open-ended approach to value capture were highlighted in a recent Infrastructure Victoria paper on the subject.

“A recent Infrastructure Victoria research paper modelled a range of value capture mechanisms, including the possibility of 'betterment taxes' on existing properties within one kilometre of the potential future Melbourne Metro Rail 2 project. The model flagged adding $840,000 each year for 30 years for a 40,000 sqm existing office building, on top of the land tax already paid for the asset.

“If governments adopted such a model, the end result would be greater costs for businesses and a perverse incentive not to use office accommodation close to public transport. In other words, a tax system that encouraged more people to drive cars.

“While the discussion paper points to successful projects that used value capture overseas, most of the cities have densities far greater than in Australia.

"The reality is that our cities are still a long way from the densities of Hong Kong or London, and governments and communities still have a very cautious approach to creating compact cities.”

Mr Morrison welcomed the methodological approach the Minister was taking to the complex issue of value capture.

“All too often policy is rushed, alternatives are not considered, the community is not brought into the equation and a broad consensus is not reached. However, what we are seeing in this area is an ‘old fashioned’ methodical approach that tests arguments, identifies weaknesses, and consults with all affected.”

See also:

Property Council urges Senate to pass ABCC legislation

Keeping the door open to investment

The dangers of changing property tax policy