When the NSW Minister for Planning and Public Spaces Rob Stokes asked me, in April 2020, to conduct an independent review of the infrastructure contributions system, I accepted, admittedly with some trepidation.
Charges on developers have been in place in NSW since 1979 but this was one area of the planning system consistently criticised for inefficiency, complexity, and ineffectiveness. Previous reform attempts seem only to have thrown up new challenges, while ad hoc changes to address short-term problems have resulted in a system that is complex and confusing. Moreover, the system does not support the delivery of infrastructure where population growth demands it.
But low productivity and medium-term fiscal pressures mean comprehensive reform can no longer be put off. This need has only been accentuated by the COVID-19 pandemic and the recession it caused. The minister, accordingly, provided terms of reference for contributions to be reviewed within the overall context of infrastructure funding and delivery in NSW.
The economic benefits of infrastructure contributions reform are significant. Net gains of up to $12 billion over 20 years will come in the form of better services, more housing, and savings for business. They will support an additional 2,600 jobs and increase gross state product by more than $600 million each year.
An efficient contributions system that provides for the service needs of growing communities must be based on sound principles. My review has identified the principles of certainty, cost-reflectivity, consistency, administrative simplicity, and transparency as integral to the system going forward.
What does this mean for councils, industry, communities, and state agencies that rely on the contributions system? The first step is getting local service delivery on a sounder footing. This means the local government rate peg should take account of population growth so councils can maintain their per capita rates revenue. Reform will provide councils the resources they need to support their growing communities while continuing to guard against unjustified rate increases. The existing financial disincentive for councils to accept development will be removed by linking growth in their general revenue to growth in the population they serve.
Rate peg reform — currently being explored by the Independent Pricing and Regulatory Tribunal — will allow for removal of unjustified items from local contributions plans. In future, councils will charge developers the additional service costs their developments generate — no more, no less. Gone will be unnecessary gold-plating and the unpredictable use of planning agreements to cover funding gaps.
My review provides an opportunity to address a vexed issue for both state and local government in containing infrastructure costs: property acquisition and land value uplift from rezoning. A new arrangement for direct contribution of land following rezoning will better ensure enough land is set aside for open space and infrastructure.
Industry groups told me they were happy to pay contributions — they merely want to know up front so they can factor them into project feasibility and property acquisition. That is why I’ve recommended local contributions plans be developed earlier and published at the time of re-zoning. Simple state charges are also recommended — including for properties up-zoned as a result of major transport investment. A return to cost-reflective charges for water connections for Sydney Water and Hunter Water will better align their capital planning with development activity. It will also take pressure off household water bills.
The overall integrity of the system will be enhanced by greater transparency around how contributions revenues are managed and where they are spent.
My reform package is, however, a package; each individual recommendation has been designed with regard to other recommendations. Picking and choosing what to accept and what to ignore could lead to the unravelling of the reform and limit the benefits on offer.