The relevance and risks of 'value capture' and associated metro reforms

The NSW government is talking about taxing the increase in land values in areas which have residential and commercial densification and/or infrastructure projects. The areas are widespread, repeated in almost every government announcement. The national government is doing the same. It is the term du jour. Sydney and other Australian cities have a backlog of asset maintenance let alone a growing load associated with population growth and spatial changes. Added to this the NSW Government has high hopes for the Greater Sydney Commission which will have to rely on some form/s of value capture to perform.

This prospect is always politically and economically difficult but the timing could hardly be worse: warnings from IMF about the "derailment" of global growth, a slowdown in the Chinese economy with plummeting stocks in many countries, the Urban Task Force's monitoring of declines in local housing activity, and the first falls in Sydney rental costs in memory, due to increased supply of apartments. The Government is seeking big yields because the electricity privatisation bucket is over-spent and the promised infrastructure will be very expensive, indeed up to the order of $50,000,000,000 including the Connex roads, Metro trains and multiple tramlines. Big yields mean big taxes – at a time of economic stress?

The national Murray Financial System inquiry and Professor Parry's NSW report on financing options including betterment capture, a metropolitan improvement fund and improved context for PPPs, have come and gone and were seemingly not remembered by the authors of two industry reports which have achieved significant circulation. (There are multiple forms of taxes and levies.)

The Committee for Sydney asks Are we there yet? Value capture and the future of public transport in Sydney (December 2015) ; while Consult Australia (via AECOM) released Value Capture Roadmap (June 2015). Both seek to educate a wider audience, or as CfS said, "while this paper focusses on the Sydney context",

it also provides governments across Australia, including the Federal Government, with a potential new way forward towards funding public transport in our cities. Given the Federal Government is looking at its role in cities policy, public transport and the appraisal process for infrastructure, we would like it to consider the possible implications of this paper from a Commonwealth perspective. It may be appropriate for the Federal Government to decide that it will only contribute funding to strategically important city transport projects in jurisdictions that have appropriate value capture funding mechanisms in place.

New? The Feds denying funding to their State colleagues? As the NSW Planning Minister has reminded us, Those who do not understand history are bound to repeat its mistakes. We should make sure both documents are "fit for purpose", in the words of the Trade Practices Act. (The following extracts should be read in context of the reports.)

First, a little history. It is often said that betterment clauses were built into NSW railway Acts but the reality is that in 1904 they were found to be invalid – and were never applied, before or after. The wave of municipal reform thinking in Sydney from about 1898 identified the need to drive health and other reforms from local levels, the State government being reactionary, and a specific case was the widening of Oxford Street. The following quotes relate to the flowering of thought through and after the Improvement of Sydney Commission in 1908-09:

TheDaily Telegraph editorialised in February 1909 that:

Recalling civic experience, and remembering how difficult it is to identify betterment justly, there is plausibility in the misgivings of Ald. Hughes with regard to the proposed betterment tax. However, the estimates put the work so well inside of financial practicability that these are questions of detail and not vital ones.

Hughes was to become Sir Thomas, Sydney's first Lord Mayor. The attempt to impose a betterment tax on the southern side of Oxford Street eventually failed, with "strenuous claims" that the road-widening scheme had reduced land values rather than increased them (not surprisingly given the brutal scale of demolition). By that time the City Council had gained the income from land value taxation so the financial pressure had lessened. Former Lord Mayor Allen Taylorwas adamant in 1913 that

the Harbour Bridge was a municipal responsibility (it was held-up by country antagonism). The country would still have benefitted from a rake-off from the urban population as it does now (and Queensland etc under horizontal fiscal disequilibrium). Most fundamentally, only an urban parliament would have been successful in arguing for urban betterment taxes, the biggest issue of all. It would be wrong to assume that the size of the pie was fixed as the American States have shown. Sydney is an infrastructure-poor city and its local government needs better financial underpinning.

There was a municipal levy on CBD and northern suburbs LGAs from 1923 to 1938 to pay for the approaches to the Harbour Bridge. Labor's Lang implemented it and Bertie Stevens (Coalition) from 1932 reduced it then eliminated it because of retailers' objections. From 1970 the State Planning Authority imposed a 30 per cent levy on the value "uplift" on specific lands, primarily in the Macarthur area near Campbelltown (fully hypothecated). Political manoeuvring during the State election just three years later saw it dropped (by the Coalition) amidst claims it had increased land prices at a time of housing shortages. The Gold Coast Rapid Transit is underpinned by a levy in the broad betterment catchment.