All new major projects and precinct developments in Victoria will require a plan for value capture or creation, in what the state government is calling an Australian first to provide a consistent approach to increasing public return on government investment.
The government’s new Value Creation and Capture Framework, released earlier this week, outlines options for recouping costs and boosting economic opportunities for major developments.
This can either include value creation — a broad term covering the creation of opportunities to benefit the community, such as public housing, bike paths, increased job opportunities and environmental improvements — and value capture — raising revenue by taking part of the economic benefit of a new project, such as taxing nearby landowners for part of the increased land value from a new development, selling air or land rights for private sector development, or road tolls.
It provides a “menu” of mechanisms project sponsors should consider for inclusion in projects, as appropriate in the specific context and circumstances, but is not meant to provide guidance on making trade-offs between competing policy objectives.
The framework applies to precinct projects, major developments of public land and high value capital investments — generally those worth more than $100 million.
The government is keen to emphasise this is about more than increasing tax, saying it “supports value capture, but also recognises the role of government to invest in better communities without charging those communities for it,” describing the plan as “an Australian first that centres on realising and creating value, rather than taxing beneficiaries.”
Indeed, Victoria has already had a version of value capture in place since 2010 under the growth area infrastructure contribution scheme, a one off-charge recovering part of the increased value of designated growth corridor land when rezoned. It can be offset by providing land or infrastructure works to the state.
Equitable, transparent, evidence-based…
The framework sets out guidelines for public servants as to how value capture should be applied. Value capture mechanisms should be:
- equitable, recognising government’s core responsibility to build better communities;
- fair, by ensuring any costs to beneficiaries should not impose undue financial hardship;
- proportionate, by applying at a level that is demonstrably commensurate with the amount of private value created;
- cost efficient to implement and comply with;
- transparent and easily understood;
- consistent with government policy, by aligning with project objectives and broader government objectives;
- effective, not creating unintended consequences or driving alternative unwanted behaviours;
- evidence based, by ensuring benefits are quantified and attributable to government action;
- timely; and
- clearly communicated to stakeholders.
“The Victorian public service now has a clear direction to apply a new way of thinking and to focus on pursuing greater value in infrastructure project delivery,” states the guide.
It uses the new Metro Tunnel rail project to illustrate the kinds of “value creation” that could be included in new projects:
- integrated development over CBD North and South Stations;
- retail opportunities either within the stations or above ground station structures;
- revenue derived from station advertising; and
- revenue associated with new telecommunications infrastructure.
The framework’s release comes as the Grattan Institute released a report arguing value capture is a good idea, but difficult to implement. The think tank recommended broad-based land tax as a better option for capturing the benefits of public investment.
Notwithstanding the difficulties surrounding it, the idea of value capture is gaining in popularity.
Prime Minister Malcolm Turnbull is keen on the idea of value capture, citing it as one of the keys to future urban development. The federal government’s Smart Cities Plan recommends value capture as a means of better distributing “the costs and benefits in publicly funded infrastructure to facilitate a project that may not otherwise occur”.
Disagreements over how to divide the proceeds of value capture have caused problems in New South Wales, with the minister accusing local governments of imposing excessive charges on new homes.