Innovative way to fund infrastructure welcome

A way to finance the delivery of infrastructure used extensively in the US and the UK, known as tax increment financing, is a proven model that would work in Australia, according to a major PwC study commissioned by the Property Council of Australia.

Chief Executive Ken Morrison welcomed reports in today’s Australian Financial Review that the Federal Government is considering this infrastructure funding mechanism.

“Infrastructure delivery is lagging behind the needs of our growing cities but tax increment financing is a way to dramatically speed this up,” Mr Morrison said.

“This model overcomes the two highest hurdles infrastructure projects face: finding sizeable upfront capital and getting all levels of government working together.

“The beauty of tax increment financing is that it secures funding from additional revenue streams without the need to levy new taxes.

“It’s is an approach that uses economic growth to fund projects and we strongly encourage the Government to further explore this opportunity.

“Tax increment financing is something we have been looking at for some time and in 2008 we commissioned PwC to crunch the numbers on two key case studies.

“The results of that study clearly demonstrated that it is a model that stacks up financially and could make a major contribution to funding new infrastructure in Australia.”

The PwC report analysed two Sydney-based projects, one involving a major new land release and the second significant urban infill around a new railway line.

Using incremental revenue increases from an existing tax base (land tax and stamp duty) the study found both projects would be paid back within 16 years.

Case study 1: hypothetical Gladesville urban renewal

• $125 million of infrastructure: metro rail station (as part of then-proposed metro rail line), adjacent car park, public plaza, street scaping and public park.
• Three quarters of this infrastructure could be paid by hypothecating increases in land tax and stamp duty revenue after just 14 years.

Case study 2: South west Sydney growth centre

• $2.6 billion of state identified infrastructure to facilitate a shift from the then sparsely populated, semi-rural land use, to urban residential and non-residential development, comprising a significant number of apartments, town houses, detached homes and commercial and industrial lots.
• Infrastructure included regional and local roads, bus depots, land for schools and health facilities, and open space.

• Three quarters of this infrastructure could be paid by hypothecating increases in land tax and stamp duty revenue after just 16 years.

The full report is available on our website.

Media contact:  Fiona Benson  |  M  0407 294 620  |   E  [email protected]