Making value capture a prerequisite for access to federal funds is one of the many ideas put forward in the federal government’s just-released discussion paper on value capture for funding transport infrastructure.

The paper says there is ample evidence that public infrastructure provides large economic benefits for business, government and households, including in land value improvements and increased access to labour markets. Despite this strong rationale, there has not been a comprehensive national approach to value capture, which seeks to tap part of the value generated by infrastructure projects to use as a funding source.

The government is keen to promote value capture, which it says when applied appropriately can lead to “more infrastructure, better integrated planning between infrastructure and land use needs, increased economic benefits beyond transport objectives, earlier delivery of infrastructure needs and fairer funding models”.

While legal and constitutional responsibility for delivering value capture lies with state and local governments, the federal government said it was considering a range of options to help other tiers of governments, including:

  • enforcing standard conditions on funding of all Commonwealth projects, for example making value capture a condition of grant funding
  • creating a specific funding program for projects with a value capture element, to incentivise state government action
  • providing financing linked to incremental tax revenues to fill the gap between when upfront capital is needed for a project and when value capture benefits are realised. This could take the form of loans or guarantees over hypothecated tax revenue models, such as tax increment financing, which is used routinely in the US
  • establishing an infrastructure investment market – governments would set out urban-level strategic plans, identifying major deficiencies and future priority needs, and private investors would then be encouraged to bring forward proposals for value capture funded projects to governments which helped address these priorities
  • developing a national evidence base of infrastructure project benefits
  • developing a national methodology and guidelines to ensure a nationally consistent approach, which would help to improve transparency, efficiency and accessibility

Federal minister for urban infrastructure Paul Fletcher said the government was after public and industry input on value capture, and the best mechanisms to enable it.

“Many states and territories already use value capture funding models to support major upgrades,” Mr Fletcher said.

“Similarly, developer charges are commonly used by local government authorities to help deliver utilities for new housing developments.

“If we are to make better use of value capture, governments must first understand why beneficiaries might be willing to pay for projects; identifying who these beneficiaries are and when they might materially gain from projects funded through this method.”

The discussion paper was welcomed by industry associations Consult Australia and Property Council of Australia.

Chief executive Megan Motto said any value capture arrangement would need to achieve a “careful balance” between sharing benefits and not discouraging development.

“It has become increasingly clear that the increasing demands for better infrastructure and clear limits on public funds need to be met with more sophisticated ways to consider and fund the development of our cities,” Ms Motto said.

“Value capture supports the kinds of integrated planning and project delivery that enable precinct-wide outcomes and more services provided to local communities.”

PCA chief executive Ken Morrison said everyone wanted to see more infrastructure built though warned of the potential to add more tax burden to business.

“We welcome many of the ideas in the discussion paper … but governments need to firmly rule out new taxes under the cloak of value capture,” he said.

Mr Morrison was particularly welcoming of the government’s mention of tax increment financing.

“Minister Fletcher’s willingness to consider tax increment financing is a positive step,” he said. “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.”

Submissions can be made until 3 February 2016.