Value Capture in the Australian Context Value Capture in Infrastructure 2017 Joe Langley, Technical Director

Commercial Advisory

March 15, 2017

“In commencing this tax review, the Government will be considering every worthwhile idea, even if it does not fit neatly with the existing set of major taxes we now have. Through this tax review we will develop a better tax system that delivers taxes which are lower, simpler and fairer. A tax system that encourages productive endeavour.” Re:think – Tax discussion paper, March 2015 The Australian Government the Treasury

Topics What is the problem we are trying to solve?

Where are we now with solutions?

Myths, Misconceptions and Roadblocks

What is “Value Capture” in the Australian context?

Guiding principles of an Australian Value Capture Funding Model

Recommendations

March 15, 2017 Page 3

CrossRail Paddington Station, London

What is the problem we are trying to solve?

•  Australia is facing a increasing infrastructure funding gap.

•  Present methods for recouping infrastructure costs are inadequate and inequitable.

March 15, 2017 Page 4

What is the problem we are trying to solve? Australia is facing a increasing infrastructure funding gap

March 15, 2017 Page 5

Social – 12.5%

Economic – 26%

Real estate – 48%

2013 All Global infrastructure spending •  $9.6 trillion •  14% of Global GDP Economic infrastructure spending •  Actuals in 2013 = $2.5 trillion •  Forecast 2016-2030 = $3.3 trillion •  Forecast need = 3.5% of GDP

What is the problem we are trying to solve?

March 15, 2017 Page 6

Present methods for recouping infrastructure costs are inadequate and inequitable.

Base Case •  Low density •  No metro

With Project •  Mid – high density •  New metro

Value created from early planning

What is the problem we are trying to solve?

March 15, 2017 Page 7

44 Ashford Ave, Castle Hill Zoning Single Dwelling 16 storey apts. Purchased 2007 2016 Price $1,038,000 $13,079,600* Land Area 3,712 m2 3,712 m2

Land Value (est) $638,000 $12,679,600 Land Value $172m2 $3,416m2

What is the problem we are trying to solve?

March 15, 2017 Page 8

Land value only No Metro With Metro Land value in 2016 $1,594,000 $13,079,600

Purchased $638,000 $638,000 Gain on Sale $956,000 $12,441,600

Increase (2008-16) 150% 1,950% Increase (pa) 19% 244%

Per Unit Construction $360,000 Developer @ 30% $118,800 Land Cost $155,858 Total $634,658 Selling Price $850,000 Profit @ 93 units $20,027,000

Showgrounds Metro Station

Where are we now with solutions?

March 15, 2017 Page 9

AECOM •  Value Capture Roadmap •  Funding Australia’s Future

Federal Government •  Smart Cities Plan •  Value Capture Discussion Paper •  IA Advice on Capturing Value

States •  Value Capture Departments •  Value Capture Discussion Papers

Myths, Misconceptions and Roadblocks

•  Existing funding methods already capture value.

•  Tax Increment Financing (TIF) hypothecates tax revenues that would otherwise have occurred.

•  Housing affordability will suffer. •  Its just another tax. •  Simply moves economic activity from

one place to another. •  It will increase the cost of development. •  Developers hate it.

March 15, 2017 Page 10

Meanwhile, the infrastructure funding pot gets hotter…..

Myths, Misconceptions and Roadblocks

All funding measures are not equal •  Active vs passive •  Equitable vs less equitable •  Risks of double taxation

March 15, 2017 Page 11

What is “Value Capture” in the Australian context?

March 15, 2017 Page 12

•  Captures and hypothecates a portion of the value created by public investments

•  Direct and indirect beneficiaries contribute in proportion to the benefits they receive.

•  Nexus is critically important - the higher the benefit, the larger the contribution.

•  Beneficiaries and contributors include public agencies and the private sector

•  Hypothecated funds dedicated to specific infrastructure investments that produce these benefits. Denver Union Station Redevelopment

Guiding principles of an Australian Value Capture Funding Model

March 15, 2017 Page 13

•  Transformational infrastructure

•  Infrastructure list

•  Precinct-based planning

•  Private sector participation

•  Hypothecation

•  Sunset clause

•  Part of broader, longer term tax reform

CrossRail Paddington Station, London

Guiding principles of an Australian Value Capture Funding Model

March 15, 2017 Page 14

•  Transformational infrastructure

•  Infrastructure list

•  Precinct-based planning

•  Private sector participation

•  Hypothecation

•  Sunset clause

•  Part of broader, longer term tax reform

Guiding principles of an Australian Value Capture Funding Model

March 15, 2017 Page 15

•  Transformational infrastructure

•  Infrastructure list

•  Precinct-based planning

•  Private sector participation

•  Hypothecation

•  Sunset clause

•  Part of broader, longer term tax reform

Guiding principles of an Australian Value Capture Funding Model

March 15, 2017 Page 16

•  Transformational infrastructure

•  Infrastructure list

•  Precinct-based planning

•  Private sector participation

•  Hypothecation

•  Sunset clause

•  Part of broader, longer term tax reform

Guiding principles of an Australian Value Capture Funding Model

March 15, 2017 Page 17

•  Transformational infrastructure

•  Infrastructure list

•  Precinct-based planning

•  Private sector participation

•  Hypothecation

•  Sunset clause

•  Part of broader, longer term tax reform

Guiding principles of an Australian Value Capture Funding Model

March 15, 2017 Page 18

•  Transformational infrastructure

•  Infrastructure list

•  Precinct-based planning

•  Private sector participation

•  Hypothecation

•  Sunset clause

•  Part of broader, longer term tax reform

Guiding principles of an Australian Value Capture Funding Model

March 15, 2017 Page 19

•  Transformational infrastructure

•  Infrastructure list

•  Precinct-based planning

•  Private sector participation

•  Hypothecation

•  Sunset clause

•  Part of broader, longer term tax reform

Land Tax

Stamp Duty

Recommendations

March 15, 2017 Page 20

•  Federal Government should establish a national framework, create incentives and support pilot schemes

•  Build upon existing arrangements while progressive needed long term reforms

•  Adopt and apply guiding principles

Thank You

Joe Langley

+614 5805 3520

Joe.langley@aecom.com