Infrastructure funding not one-size-fits-all

Wednesday 28 September, 2016 | By: Default Admin | Tags: Cross River Rail, London Crossrail, congestion, infrastructure levy

Recent commentary around funding for Brisbane’s Cross River Rail has seen the State Government again hinting to the private sector: Show me the money!

Deputy Premier Jackie Trad recently looked into the funding models used to bankroll London’s Crossrail project and King’s Cross redevelopment, alluding to the possibility of using the same financing options for Brisbane’s Cross River Rail (CRR) project.

Specifically, Ms Trad mentioned the UK’s Business Rate Supplement (business levy) used to fund Crossrail, and believed that the same sort of partnership was vital for CRR to go ahead.

While the business community is still yet to be consulted on such proposal, there are a few critical points which we first must examine.

1)            On the topic of the Business Rate Supplement, what needs to be discussed first and foremost is whether this type of tax is economically viable for Brisbane now, and in the long-term.

The question should be asked as to whether the new tax, once added onto the overall tax base, will reduce the attractiveness of Brisbane as a place to establish your business. A higher tax rate for businesses to set up in Brisbane may see companies continue to choose Sydney or Melbourne – cities which already out-compete Brisbane with its wider offering.

It is also perhaps foolish to compare Brisbane to London, a leading global city with the largest number of international arrivals in the world, whose capacity to attract investments relies less on tax than it does on status.

2)            The public funding of UK’s Crossrail project came from 3 different sources: the Business Rate Supplement (BRS), section 106 agreements (s106) and the Community Infrastructure Levy (CIL).

The latter two levies already exist here in a similar form through infrastructure charges – collected by local governments – on new developments. Even more, the s106 allowed for development which may not have been deemed “appropriate” to proceed, on the basis that the developer pays a sum. Therefore, the private sector also benefits from the funds they pay.

It would seem logical for Brisbane City Council to help fund part of the CRR project, not only because new developments (and therefore increased infrastructure contributions) are likely to proceed on the basis of the CRR project, but also because the economic benefits are largely centralised within Brisbane’s inner city areas.

3)            It is difficult to compare King’s Cross Redevelopment with CRR as the two projects are vastly different, meaning the return on investment as well as appetite to invest would also be vastly different.

King’s Cross Redevelopment is 67 acres (27 hectares) of residential development, offices, a hotel, universities, retail and leisure facilities built on brownfield (old industrial) land. At its heart is a national transport hub which includes international high speed rail to Paris.

Outwardly, it would be a much tougher job to convince our superannuation funds to invest in CRR, though not impossible. Also important to note, is that AustralianSuper essentially bought their share of the project when the UK government sold its stake (property assets) in the redevelopment to reduce their budget deficit.

rail map

Moving forward, what is it that the State Government should keep in mind?

•             ‘Value capture’ should not be interpreted as just another means to raise taxes from the business community.

•             An investment by Brisbane City Council is only fair and captures the economic benefits and returns that the city will receive as a result of the CRR project going ahead.

•             A Regulatory Impact Statement should be conducted to understand the holistic, long-term consequences of introducing the levy on Brisbane and Queensland’s economy.

•             Any introduced infrastructure levy must only apply to properties and businesses who would receive a direct boost as a result of the project going ahead.

•             A small business exemption should apply, similar to the model used for Crossrail. Businesses with a rateable value of under £55,000 were exempt, therefore relieving thousands of smaller businesses who would’ve otherwise been affected.

•             Also similar to Crossrail, any infrastructure levy must only be a temporary tax that finishes once costs are covered.

•             Furthermore, there needs to be a defined barrier as to how much tax can be imposed, so that it does not set a precedence for all infrastructure investment to be funded by businesses, nor for the tax to cover more than one project at a time.

While Brisbane can certainly aspire to be like London, we must keep in mind that we are different and our approach to infrastructure funding must therefore reflect this.

 

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