Value capture isn’t going to solve Australia’s infrastructure problems

Some Australians building some apartments. Image: Getty.

Is “value capture” a wonderful untapped opportunity to fulfil all Australia's infrastructure dreams? Or is it just a new way to sting the taxpayer? Our new report casts a cold, hard gaze over value capture, and finds that it’s a good tax in theory, but will prove very hard to put into practice. The Conversation

Value capture is the name given to a policy whereby governments capture some of the increased value of land that results from building a new piece of infrastructure. Typically, the money the government “captures” is used to help fund the project.

At first glance, value capture seems marvellously fair, because it applies only to those who benefit from the particular project. So the people of western Sydney do not help fund a new railway station on the North Shore. But look a little closer: it also means that affluent inner-city residents don’t help fund a better railway station in Melbourne’s outer northern suburbs.

Federal ministers from the prime minister down are enthusiastic about value capture and are pushing the states to embrace it. Only last month, urban infrastructure minister Paul Fletcher reiterated that the Commonwealth does not want to be “just an ATM” for the states. But if the federal ministers face up to some home truths, they may find value capture less to their liking.

Value capture is a tax

Home Truth No. 1 is that a value-capture scheme is a tax. That’s how it raises revenue. Politicians tend to shun the “T word”. They prefer to present value capture as an innovative financing mechanism. Sorry, it’s a tax.

Some advocates point to Hong Kong, where a private company builds and operates the rail lines, in return for cheap access to development rights around the new stations – a non-cash subsidy. Yes, integrating new infrastructure with rezoning and other planning changes is a great idea. But a similar model in Australia would have to be much smaller in scale.

That’s because in Hong Kong the government owns all the land. In addition, the city is dramatically denser than Australian cities: more than 7m people live in a built-up area of around 285 square kilometres, compared with Sydney’s population of about 5m in around 2,000 square kilometres. In a very dense city, good access to mass transit is highly valued.

Others in the value-capture camp point to tax increment financing (TIF) schemes. These have been used in the US with mixed success.

TIF schemes don’t involve a new tax, or indeed a funding source of any kind. Instead, they are financing schemes that earmark an expected increase in future revenue from existing taxes, such as land taxes, which can be attributed to a new piece of infrastructure. This increase is then used to repay special-purpose bonds.

But TIF schemes are of little value in the Australian context, since Australian governments have strong credit ratings and can borrow at extremely low rates of interest – more cheaply than private sector financiers can. Not only this, but TIF schemes generally do not offload project risk. They may instead come with a hidden government guarantee.

Family home would be captured

Which brings us to Home Truth No. 2: to raise a reasonable amount, a value-capture tax would need to include the family home. Owner-occupied housing accounts for around 65 per cent of total land values in Australia, and increases in its value are taxed very lightly (see the chart below).

Click to expand. Image: author provided.

To minimise the distortions value capture could have on the economy, it should be charged on unimproved land value, as a flat proportion of the land-value uplift attributable to the new infrastructure, with no exemptions.

A tricky question of who’s in and who’s out

Home Truth No. 3 is that many taxpayers are likely to feel aggrieved. Property prices go up – and down – for many reasons.

Drawing a boundary around a new piece of infrastructure to distinguish between those who must pay the new tax and those too far away to benefit is bound to involve rough justice.

Also, it won’t be easy for governments to convince people that their new tax bill still leaves them better off. Homeowners get the benefit of the new project on paper, but have to pay the tax bill in cash. Is this sounding like a political nightmare yet?

A way to reduce the political heat

There is, however, a way to implement value capture that could take a bit of the political heat out of individual decisions. Governments could pass general legislation that applies value capture to every transport infrastructure project with certain characteristics:

  • an identifiable beneficiary catchment;

  • a project that’s expected to makes an area significantly more accessible;

  • the amount of revenue to be raised far outweighs the cost of administering the scheme.

So, for example, value capture might apply to all urban passenger rail projects costing over A$50m. The tax might then be levied on all properties within 800 metres (i.e. walking distance) of a new station.

Once such legislation is in place, each value-capture tax may be slightly less politically fraught. This approach will minimise the opportunities for rent-seeking or corruption that arise from designing bespoke schemes for every individual project.

Broad-based land tax is better still

A better answer still could be a broad-based land tax. Such a tax is highly efficient, because land is an immobile tax base (see the chart below).

Click to expand. Image: author provided.

While it would not zero in on the beneficiaries of new infrastructure, a land tax would capture the effects of all infrastructure, old and new, as these translated into land values, making it scrupulously fair. A broad-based land tax would also be simpler to administer than a value-capture tax. That’s because there would be no requirement to police the geographic boundary of the catchment area.


So a broad-based land tax has some distinct advantages over a value-capture tax.

Some will say our conclusions are pessimistic, that a little more creativity could devise a way to design value capture so it painlessly funds public infrastructure. To which we would say: there’s no magic pudding when it comes to public money – the only sources of funding for public infrastructure are user charges or a tax. Value capture may involve taxing beneficiaries more than the general taxpayer, but it’s not a bucket of free money.

Yes, if value capture is done the right way, as a tax that embraces the principles of equity, efficiency and simplicity, it could make a positive contribution to infrastructure funding in Australia. But the truth is, there is nothing easy about capturing value.

Marion Terrill is transport program director and Owain Emslie an associate at the Grattan InstituteThey are the authors of the new Grattan Institute report, What price value capture?, available here.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

Was the decline in Liverpool’s historic population really that unusual?

A view of Liverpool from Birkenhead. Image: Getty.

It is often reported that Liverpool’s population halved after the 1930s. But is this true? Or is it a myth?

Often, it’s simply assumed that it’s true. The end. Indeed, proud Londoner Lord Adonis – a leading proponent of the Liverpool-bypassing High Speed 2 railway, current chair of the National Infrastructure Commission, and generally a very influential person – stood on the stairs in Liverpool Town Hall in 2011 and said:

“The population of Liverpool has nearly halved in the last 50 years.”

This raises two questions. Firstly, did the population of the City of Liverpool really nearly halve in the 50 year period to 2011? That’s easy to check using this University of Portsmouth website – so I did just that (even though I knew he was wrong anyway). In 2011, the population of the City of Liverpool was 466,415. Fifty years earlier, in 1961, it was 737,637, which equates to a 37 per cent drop. Oops!

In fact, the City of Liverpool’s peak population was recorded in the 1931 Census as 846,302. Its lowest subsequent figure was recorded in the 2001 Census as 439,428 – which represents a 48 per cent decline from the peak population, over a 70 year period.

Compare this to the population figures for the similarly sized City of Manchester. Its peak population also recorded in the 1931 Census as 748,729, and its lowest subsequent figure was also recorded in the 2001 Census, as 392,830. This also represents a 48 per cent decline from the peak population, over the same 70 year period.

So, as can be seen here, Liverpool is not a special case at all. Which makes me wonder why it is often singled out or portrayed as exceptional in this regard, in the media and, indeed, by some badly briefed politicians. Even London has a similar story to tell, and it is told rather well in this recent article by a Londoner, for the Museum of London. (Editor’s note: It’s one of mine.)

This leads me onto the second question: where have all those people gone: London? The Moon? Mars?

Well, it turns out that the answer is bit boring and obvious actually: after World War 2, lots of people moved to the suburbs. You know: cars, commuter trains, slum clearance, the Blitz, all that stuff. In other words, Liverpool is just like many other places: after the war, this country experienced a depopulation bonanza.


So what form did this movement to the suburbs take, as far as Liverpool was concerned? Well, people moved and were moved to the suburbs of Greater Liverpool, in what are now the outer boroughs of the city region: Halton, Knowsley, St Helens, Sefton, Wirral. Others moved further, to Cheshire West & Chester, West Lancashire, Warrington, even nearby North Wales, as previously discussed here.

In common with many cities, indeed, Liverpool City Council actually built and owned large several ‘New Town’ council estates, to which they moved tens of thousands of people to from Liverpool’s inner districts: Winsford in Cheshire West (where comedian John Bishop grew up), Runcorn in Halton (where comedian John Bishop also grew up), Skelmersdale in West Lancashire, Kirkby in Knowsley. There is nothing unique or sinister here about Liverpool (apart from comedian John Bishop). This was common practice across the country – Indeed, it was central government policy – and resulted in about 160,000 people being ‘removed’ from the Liverpool local authority area.

Many other people also moved to the nearby suburbs of Greater Liverpool to private housing – another trend reflected across the country. It’s worth acknowledging, however, that cities across the world are subject to a level of ‘churn’ in population, whereby many people move out and many people move in, over time, too.

So how did those prominent images of derelict streets in the inner-city part of the City of Liverpool local authority area come about? For that, you have to blame the last Labour government’s over-zealous ‘Housing Market Renewal Initiative’ (HMRI) disaster – and the over enthusiastic participation of the then-Lib Dem controlled city council. On the promise of ‘free’ money from central government, the latter removed hundreds of people from their homes with a view to demolishing the Victorian terraces, and building new replacements. Many of these houses, in truth, were already fully modernised, owner-occupied houses within viable and longstanding communities, as can be seen here in Voelas Street, one of the famous Welsh Streets of Liverpool:

Voelas Street before HMRI implementation. Image: WelshStreets.co.uk.

The same picture after HMRI implementation Image: WelshStreets.co.uk. 

Nonetheless: the council bought the houses and ‘tinned them up’ ready for demolition. Then the coalition Conservative/Lib Dem government, elected in 2010, pulled the plug on the scheme. 

Fast forward to 2017 and many of the condemned houses have been renovated, in a process which is still ongoing. These are over-subscribed when they come to market, suggesting that the idea was never appropriate for Liverpool on that scale. 

At any rate, it turns out that the Liverpool metropolitan population is pretty much the same as it was at its peak in 1931 (depending where the local borough boundaries are arbitrarily drawn). It just begs the question: why are well educated and supposedly clever people misrepresenting the Liverpool metropolis, in particular, in this way so often? Surely they aren’t stupid are they?


And why are some people so determined to always isolate the City of Liverpool from its hinterland, while London is always described in terms of its whole urban area? It just confuses and undermines what would otherwise often be worthwhile comparisons and discussions. Or, to put it another way: “never, ever, compare apples with larger urban zones”.

In a recent Channel 4 documentary, for example, the well-known and respected journalist Michael Burke directly compared the forecast population growths, by 2039, of the City of Liverpool single local authority area against that of the combined 33 local authority areas of Greater London: 42,722 versus 2.187,708. I mean, what bizarre point is such an inappropriate comparison even trying to make? It is like comparing the projected growth of a normal sized-person’s head with the projected growth of the whole of an obese person, over a protracted period.

Having said all that, there is an important sensible conversation to be had as to why the populations of the Greater Liverpool metropolis and others haven’t grown as fast as maybe should have been the case, whilst, in recent times, the Greater London population has been burgeoning. But constantly pitching it as some sort of rare local apocalypse helps no one.

Dave Mail has declared himself CityMetric’s Liverpool City Region correspondent. He will be updating us on the brave new world of Liverpool City Region, mostly monthly, in ‘E-mail from Liverpool City Region’ and he is on twitter @davemail2017.