Insights

Introduction

This article discusses the practical, legal and public policy issues arising from the reform of Queensland’s infrastructure contributions regime which commenced on 1 July 2011. This article is based on a presentation to a seminar of the Planning Institute of Australia delivered in Brisbane on 26 July 2011.

Executive Summary

Infrastructure charges reform

The Queensland government has made significant changes to the infrastructure contributions regime that is to be applied by local governments and South-East Queensland distributor-retailers.

New infrastructure contributions regime

A new infrastructure contributions regime has been implemented through two legislative instruments:

Significant practical implications

The new infrastructure contributions regime has made significant changes to the infrastructure contributions powers of local governments and SEQ distributor-retailers including the following:

  • First, infrastructure charges capping has been implemented for infrastructure charges that may be levied by local governments and SEQ distributor-retailers.
  • Second, the general power of local governments to impose conditions for infrastructure contributions for development infrastructure has been removed and replaced with specific powers which are aligned with the powers of SEQ distributor-retailers (that are currently delegated to local governments). These powers increase in scope once a local government makes a priority infrastructure plan.

These changes will have significant practical implications for all stakeholders; local governments and their ratepayers, SEQ distributor-retailers and their customers as well as developers and landowners.

Themes of paper

This paper has four themes:

  • First, the paper analyses the capping of infrastructure charges for development infrastructure levied by local governments and SEQ distributor-retailers.
  • Second, the paper analyses the limitations imposed on local government conditioning powers for infrastructure contributions for development infrastructure.
  • Third, the paper considers the response of local governments and SEQ distributor-retailers to the new infrastructure contributions regime.
  • Fourth, the paper considers some of the practical implications from a legal and policy perspective that arise from the new infrastructure contributions regime.
  • Finally, the paper concludes with some observations on the public policy implications of the new infrastructure contributions regime that will be further developed in a paper to be presented at the forthcoming Planning Institute of Australia State conference.

Capped Infrastructure Charges

Implementation of reform

Turning then to the first theme of this paper, the capping of infrastructure charges. The new infrastructure contributions regime has implemented infrastructure charges capping through the following:

  • First, the Minister is given the power to make a State planning regulatory provision (adopted charges) (Adopted Charges SPRP) (See section 648B of the Sustainable Planning Act 2009 (SPA).)
  • Second, where the Minister has made an Adopted Charges SPRP, local governments and SEQ distributor-retailers are prevented from exercising their financial contribution powers under the previous infrastructure contributions regime. (See sections 345, 347, 848 and 880 of the SPA.)
  • Third, where the Minister has made an Adopted Charges SPRP, local governments and SEQ distributor-retailers may only levy their respective proportions of an adopted infrastructure charge. (See sections 648G and 755A of the SPA.)
  • Fourth, a local government may make an adopted infrastructure charges resolution which states an adopted infrastructure charge. (See section 648D of the SPA.)
  • Fifth, an SEQ distributor-retailer’s board may decide matters about an adopted infrastructure charge. (See section 755KA of the SPA.)

Adopted Charges SPRP

The Minister is given power to make an Adopted Charges SPRP which contains the following:

  • The Adopted Charges SPRP must include an adopted infrastructure charges schedule containing maximum adopted charges, which may be stated for different development in different parts of local government areas. (See sections 648B(3) and 648B(4)(a) and (b) of the SPA.)
  • The Adopted Charges SPRP may include a priority infrastructure area for a local government area. (See section 648B(4)(c) of the SPA.)
  • The Adopted Charges SPRP may include the relevant proportion of an adopted infrastructure charge that may be levied by a local government and SEQ distributor-retailer, if agreement cannot be reached between them. (See sections 648B(4)(d) and 648G(2) of the SPA.)

Previous financial contribution powers excluded

Where the Minister has made an Adopted Charges SPRP, local governments and SEQ distributor-retailers are generally prevented from exercising their existing financial contribution powers. In particular:

  • Local governments without a priority infrastructure plan (or an infrastructure charges plan) cannot condition a financial contribution for development infrastructure under a planning scheme policy. (See sections 345, 347, 848, 863 and 880 of the SPA.)
  • Local governments with a priority infrastructure plan (or an infrastructure charges plan) cannot levy an infrastructure charge in accordance with an infrastructure charges schedule in the priority infrastructure plan (or infrastructure charges plan) or a regulated infrastructure charges schedule. (See sections 629, 863 and 880 of the SPA.)
  • SEQ distributor-retailers cannot levy an infrastructure charge in accordance with their SEQ infrastructure charges schedule. (See section 755K of the SPA.)

However, the financial contribution powers under the previous infrastructure contributions regime can continue to be exercised in respect of development in a declared master planned area, unless the local government has made an adopted infrastructure charges resolution which states that an adopted infrastructure charge is to be levied for that development. (See section 648E(c) of the SPA.)

Adopted infrastructure charge

Where the Minister has made an Adopted Charges SPRP and the existing financial contribution powers are excluded, local governments and SEQ distributor-retailers may only levy their respective proportions of an adopted infrastructure charge in respect of development that is not excluded by the Amended SPA.

An adopted infrastructure charge is the following:

  • for an adopted infrastructure charge levied by a local government:
    • if a local government has not made an adopted infrastructure charges resolution – the charge equivalent to the lesser of the maximum adopted charge in the Adopted Charges SPRP and an amount calculated under an existing planning scheme policy, infrastructure charges schedule in a priority infrastructure plan (including an infrastructure charges plan) or regulated infrastructure charges schedule (See sections 648A(1)(b) and 863 of the SPA.);
    • if the local government has made an adopted infrastructure charges resolution – the stated infrastructure charge (See section 648A(1)(a) of the SPA.);
  • for an adopted infrastructure charge levied by an SEQ distributor-retailer:
    • if an SEQ distributor-retailer’s board has decided to adopt a charge – the adopted charge (See section 755KB(2) of the SPA.);
    • if an SEQ distributor-retailer’s board has not decided to adopt a charge – the distributor-retailer’s relevant proportion of the adopted infrastructure charge. (See sections 755KB(2) and 755A of the SPA.)

Respective proportions of an adopted infrastructure charge

An adopted infrastructure charge levied by local governments or SEQ distributor-retailers must be limited to their respective proportions of the adopted infrastructure charge.

The proportions of an adopted infrastructure charge for a local government and SEQ distributor-retailer is to be determined as follows:

  • if the local government has not made an adopted infrastructure charges resolution – the relevant proportion being the proportions agreed by the local government and SEQ distributor-retailer or otherwise stated in an Adopted Charges SPRP; (See sections 648G(2) and (3)(b) and 648B(4)(d) of the SPA.)
  • if the local government has made an adopted infrastructure charges resolution – the proportion that would have applied before the resolution took effect being either:
    • the proportions under the previous infrastructure contributions regime being an existing planning scheme policy, infrastructure charges schedule in a priority infrastructure plan (including an infrastructure charges plan) or regulated infrastructure charges schedule; or
    • the proportions agreed by the local government and SEQ distributor-retailer or stated in an Adopted Charges SPRP.

(See sections 648G(3)(a) and 755A of the SPA.)



Excluded development

Local governments and SEQ distributor-retailers must not levy an adopted infrastructure charge for the following development:

(See section 648E of the SPA.)

Adopted infrastructure charges resolution

As noted earlier, local governments may make an adopted infrastructure charges resolution which includes an adopted infrastructure charge.

The adopted infrastructure charge must accord with the following:

  • the maximum adopted charge in the adopted infrastructure charges schedule in the Adopted Charges SPRP (See section 648D(1)(a) of the SPA.);
  • the respective proportion of the adopted infrastructure charge for the local government and SEQ distributor-retailer. (See section 648D(2) of the SPA.)

Discount for existing usage

The adopted infrastructure charges resolution may also state that an adopted infrastructure charge is to be discounted to take account of the existing usage of trunk infrastructure by the premises to which a development relates. (See section 648D(1)(d) of the SPA.)

Trunk infrastructure planning matters

The adopted infrastructure charges resolution may also state the following trunk infrastructure planning matters if the local government does not have a priority infrastructure plan:

  • trunk infrastructure
  • the trunk infrastructure networks to which the adopted infrastructure charge applies
  • the standards of service for each trunk infrastructure network
  • the establishment cost of each network.

(See section 648D(1)(e) of the SPA.)

The specification of these trunk infrastructure planning matters is relevant to the following:

  • the assessment of development
  • the conditioning powers for land and work contributions for development infrastructure
  • the calculation of offsets against an adopted infrastructure charge for the provision of land and work contributions for trunk infrastructure.

Restricted infrastructure contribution powers

It is appropriate therefore to consider the second theme of this paper; the restrictions imposed by the new infrastructure contributions regime on the powers of local governments and SEQ distributor-retailers to impose conditions for infrastructure.

In general terms, the powers of local governments have been aligned with those of SEQ distributor-retailers (which are currently delegated to local governments) and gradually increase as a local government makes a priority infrastructure plan.

Conditions for financial contributions

Local governments and SEQ distributor-retailers have the following powers to condition financial contributions for infrastructure:

  • conditioned payment for development infrastructure under a planning scheme policy – however as already noted this power has been removed where an Adopted Charges SPRP is made. (See sections 345, 347, 848 and 880 of the SPA.)
  • conditioned payment for development outside a priority infrastructure area – this power applies where a priority infrastructure area is stated in a priority infrastructure plan or an Adopted Charges SPRP. (See sections 650 and 755R of the SPA.)
  • conditioned payment for development inconsistent with the planning assumptions in a priority infrastructure plan (including an infrastructure charges plan). (See sections 650 and 755R of the SPA.)

Conditions for land and work contributions

Local governments and SEQ distributor-retailers also have the following powers to condition land and work contributions for infrastructure:

  • conditioned land and work contribution under a planning scheme policy – however as already noted this power is removed where an Adopted Charges SPRP has been made. (See sections 345, 347, 848 and 880 of the SPA.);
  • conditioned land and work contribution for development infrastructure – this power applies where a local government has not identified trunk infrastructure in a priority infrastructure plan (including an infrastructure charges plan) or adopted infrastructure charges resolution (See sections 626A and 755J of the SPA.);
  • conditioned land and work contribution for non-trunk infrastructure – this power applies where a local government has identified trunk infrastructure in a priority infrastructure plan (including an infrastructure charges plan) or adopted infrastructure charges resolution. (See sections 626 and 755J of the SPA.);
  • conditioned land and work contribution for necessary trunk infrastructure – this power applies where the local government has identified trunk infrastructure in a priority infrastructure plan (including an infrastructure charges plan) or adopted infrastructure charges resolution. (See sections 649, 755Q and 863 of the SPA.)

Dedication notice for land contributions

In addition to conditioning powers, local governments and SEQ distributor-retailers also have the power to give a dedication notice for a land contribution for trunk infrastructure.

This power applies where the local government has identified trunk infrastructure in a priority infrastructure plan (including an infrastructure charges plan) or adopted infrastructure charges resolution. (See sections 637, 648K, 755L and 863 of the SPA.)

Application of infrastructure contributions powers

The effect of the new infrastructure contributions regime on the infrastructure contribution powers of local governments and SEQ distributor-retailers is summarised in the following table.

Infrastructure contributions powers of local governments and SEQ distributor-retailers



 

Infrastructure contribution powers

No adopted infrastructure charges resolution

Adopted infrastructure charges resolution

Planning scheme policy

Infrastructure charges plan (Noosa)

Priority infrastructure plan (Gold Coast)

Trunk infrastructure not included in resolution

Trunk infrastructure included in resolution

Trunk infrastructure included in PIP (or ICP)

Financial contributions

Conditioned financial contribution under planning scheme policy (sections 345, 347, 848 and 880)1

Infrastructure charge for trunk infrastructure under infrastructure charges schedule or regulated infrastructure charges schedule (sections 629, 863 and 880)1

Infrastructure charge for trunk infrastructure for water service and wastewater service under SEQ infrastructure charges schedule (section 755K)1

Infrastructure charge under adopted infrastructure charges schedule (sections 629, 648A and 755KB)

P

P

P

P

P

P

Conditioned contribution for cost of development outside priority infrastructure area (sections 650 and 755R)

P

P

P

P

Conditioned financial contribution for cost of development inconsistent with planning assumptions of priority infrastructure plan (or infrastructure charges plan) (sections 650, 755R and 863)

P

P

P

Land and work contributions

Conditioned land and work contribution under planning scheme policy (sections 345, 347, 848 and 880)1

Conditioned development infrastructure (sections 626A and 755J)

P

P

Conditioned non-trunk infrastructure (sections 626 and 755J)

P

P

P

P

Conditioned necessary trunk infrastructure (sections 649 and 755Q)

P

P

P

P

Dedication notice for land contribution (sections 637, 648K and 755L)

P

P

P

P

 

1 This power applies to development in a declared master planned area to which the local government has not made an adopted infrastructure charges resolution which states that an adopted infrastructure charge is to be levied for the development (section 648E of the SPA.). 

 

As is evident in the table, the new infrastructure contributions regime provides for the infrastructure contributions powers of local governments and SEQ distributor-retailers to gradually increase as they move from reliance on planning scheme policies to the following:

  • first, an adopted infrastructure charges resolution without identified trunk infrastructure;
  • second, an adopted infrastructure charges resolution with identified trunk infrastructure; and
  • finally, a priority infrastructure plan (including an infrastructure charges plan).

Response of local government and SEQ distributor-retailers

Limited timeframe

Local governments and SEQ distributor-retailers were provided with less than 6 weeks to consider the implications of the new infrastructure contributions regime, determine their respective legal and policy positions and implement their decisions.

The Bill was introduced into Parliament on 10 May 2011 and the Amended SPA commenced on 6 June 2011. The Adopted Charges SPRP which triggers the operation of the new infrastructure contributions regime was initially released confidentially on 31 May 2011 with further confidential redrafts released subsequently before the Draft SPRP was publicly released and commenced on 1 July 2011.

Local governments and SEQ distributor-retailers and their officers are to be congratulated for the professionalism that they have demonstrated in responding to the limited timeframe which does not encourage the formulation and implementation of considered public policy.

Local government and SEQ distributor-retailer responses

  • Local governments and SEQ distributor-retailers have responded differently to the new infrastructure contributions regime depending on their individual circumstances. Their responses can be summarised generally as follows:
  • First, all participating local governments and SEQ distributor-retailers, other than the Ipswich City Council and Queensland Urban Utilities, appear to have reached agreement as to their respective proportions of the adopted infrastructure charges.
  • Second, generally speaking, most urban and regional local governments have decided to make adopted infrastructure charges resolutions whilst most rural local governments have as yet not made a resolution.
  • Third, of those local governments that have made adopted infrastructure charges resolutions, only those local governments with draft priority infrastructure plans in an advanced state of preparation appear to have included trunk infrastructure planning matters in their resolutions. As a result most resolutions appear not to contain these matters.
  • Finally, Gold Coast City Council, being the only local government with a priority infrastructure plan was rewarded for its significant work to date by only needing to make a resolution specifying adopted infrastructure charges.

Review of Draft SPRP

The Draft SPRP which triggered the commencement of the new infrastructure contributions regime on 1 July 2011 provides for the following:

  • First, an adopted infrastructure charges schedule which states a maximum adopted charge for different development classes that are to apply uniformly to all local government areas. (See sections 648B(3) and (4) of the SPA.)
  • Second, a priority infrastructure area for each local government. (See section 648(4)(c) of the SPA.)
  • Third, in the case of Ipswich City Council and Queensland Urban Utilities, their respective proportions of the adopted infrastructure charges. (See section 648(4)(d) of the SPA.)

Practical implications of new infrastructure contributions regime

The new infrastructure charges regime has significant legal, policy and practical implications. Some of the most significant implications are considered below.

Planning scheme policies

Planning scheme policies are of limited effect under the new infrastructure contributions regime other than to assist with the following:

  • the calculation of an adopted infrastructure charge where an adopted infrastructure charges resolution has not been made. (See section 648A(1)(b) of the SPA.)
  • the determination of the respective proportions of an adopted infrastructure charge that may be levied by local governments and SEQ distributor-retailers in the absence of an agreement between them. (See sections 648G and 755A of the SPA.)

However, as noted above, planning scheme policies may continue to be of relevance under the previous infrastructure contributions regime in respect of development in a declared master planned area which is not the subject of an adopted infrastructure charge under an adopted infrastructure charges resolution. (See section 648A(1)(b) of the SPA.)

Transitional arrangements for development applications and appeals

The Amended SPA provides that local governments and SEQ distributor-retailers must not exercise their powers under the previous infrastructure contributions regime from the day the Draft SPRP takes effect. (See sections 880(1) and (2) of the SPA.)

Whilst there are contending interpretations of the Amended SPA, our view is that existing development applications and appeals as at 1 July 2011 are to be treated as follows:

  • The previous infrastructure contributions regime applies to a development application or appeal in respect of which a local government has exercised its previous infrastructure contribution powers such as by giving a decision notice or infrastructure charges notice.
  • The new infrastructure contributions regime applies to a development application or appeal in respect of which a local government has not exercised its previous infrastructure contribution powers such as where no decision has been made or there has been a refusal.

Development assessment

The new infrastructure contributions regime also requires local government assessment managers to assess to the extent considered relevant a development application against an adopted infrastructure charges resolution or priority infrastructure plan (including an infrastructure charges plan). (See sections 313(2)(f), 314(2)(k) and 826 of the SPA.)

In particular the development application can be assessed against the trunk infrastructure planning matters for the purpose of determining whether the development would conflict with relevant planning principles, such as the following:

  • whether the development is premature in that it is not serviced or intended to be serviced by trunk infrastructure to the desired standards of service
  • whether the development compromises trunk infrastructure planning
  • whether the development proposes to provide trunk infrastructure that does not accord with the desired standards of service.

Specific condition powers

When determining a development application, local governments and SEQ distributor-retailers can only impose a condition for an infrastructure contribution for development infrastructure under the general conditioning powers in the Amended SPA where specifically provided for under the new infrastructure contributions regime.

Therefore, a condition requiring an infrastructure contribution for development infrastructure must meet the following:

  • First, it must be within a specific conditioning power applicable to development infrastructure as discussed above and summarised in the table. (See sections 347(1)(b) and 880 of the SPA.)
  • Second, it must otherwise be relevant or reasonable. (See sections 345 and 406 of the SPA cf: Section 649(8) which states the circumstances in which a condition under that section is reasonable and relevant.)

The specific conditioning powers for development infrastructure are consistent with the powers under the previous infrastructure contributions regime applicable to local governments with a priority infrastructure plan (or infrastructure charges plan).

However the specific conditioning powers are materially narrower than those powers under the previous infrastructure contributions regime applicable to local governments with a planning scheme policy.

Under the previous infrastructure contributions regime, a condition requiring a land and work contribution only had to be reasonable or relevant. Under the new infrastructure contributions regime the powers are limited to the following:

 

  • For trunk infrastructure – land and work contributions can only be required in the following circumstances:
    • existing trunk infrastructure servicing the premises is inadequate;
    • future trunk infrastructure necessary to service the premises is not available; or
    • existing or future trunk infrastructure is located on the premises.

(See section 649(1) of the SPA.)

  • For other infrastructure – land and work contributions can only be required for the following:
    • infrastructure internal to the premises;
    • infrastructure connecting the premises to external infrastructure;
    • infrastructure protecting or maintaining the safety or efficiency of a trunk infrastructure network.

(See sections 626 and 626A of the SPA.)

The conditioning powers in respect of land and work contributions for trunk infrastructure are further limited in that a condition requiring a land or work contribution for trunk infrastructure must meet certain requirements in order to satisfy the "relevant and reasonable" test.

  • A condition requiring a land or work contribution where existing trunk infrastructure servicing the premises is inadequate or future trunk infrastructure necessary to service the premises is not available is "relevant and reasonable":
    • to the extent that the infrastructure is necessary to service the premises; and
    • if the infrastructure is the most efficient and cost-effective solution for servicing the premises.

(See section 649(8)(a) of the SPA.)

  • A condition requiring a land or work contribution where existing or future trunk infrastructure is located on the premises is "relevant and reasonable" to the extent the infrastructure is not an unreasonable imposition on:
    • the development, or
    • the use of premises as a consequence of the development.

(See section 649(8)(b) of the SPA.)

The changes to the conditioning powers in respect of infrastructure contributions will require local governments and SEQ distributor-retailers to reassess the exercise of their conditioning powers for land and work contributions for development infrastructure. (See section 848 of the SPA.)
 

Offsets for land and work contributions

Where a condition power is exercised to require a land or work contribution for trunk infrastructure, the new infrastructure contributions regime provides for the offsetting of the value of the land or work contribution against an adopted infrastructure charge and in particular circumstances the payment of a refund. (See sections 649 and 755Q of the SPA.)

However, no guidance is given in relation to the following practical issues in respect of offsets:

  • First, the calculation of the value of a land or work contribution for trunk infrastructure in terms of either the establishment cost of that trunk infrastructure stated in an adopted infrastructure charges resolution or the actual cost of the land or work contribution.
  • Second, the timing for the accrual of the offset.
  • Third, the indexation of the offset from the time of accrual to the date it is applied to offset an adopted infrastructure charge.
  • Finally, the terms of any refund of an unused offset.

These matters are left to local governments and SEQ distributor-retailers to determine their own policy positions.

Indexation of an adopted infrastructure charge

The previous infrastructure contributions regime applicable to priority infrastructure plans provided for the indexation of an infrastructure charge under an infrastructure charges schedule, in order to preserve the value of an infrastructure charge from the date that it is levied to the date that it is paid. (See section 631(3) of the SPA and Statutory Guideline 01/09 Priority Infrastructure Plans and Infrastructure Charges Schedules, p.23.)

Indexation was also provided for in respect of financial contributions under a planning scheme policy. (See sections 848(4), (5) and (6) of the SPA.)

Unfortunately the new infrastructure contributions regime does not expressly deal with the indexation of an adopted infrastructure charge.

The Sustainable Planning and Other Legislation Amendment Bill 2011, introduced into Parliament on 11 October 2011, seeks to address the issue of indexation of an adopted infrastructure charge.

The Amendment Bill provides that a local government’s adopted infrastructure charges resolution and a distributor-retailer’s board decision may state how an increase to an adopted infrastructure charge is to be worked out, provided any increase is not more than the lesser of the following amounts:

  • the amount that is the difference between the amount of the adopted infrastructure charge levied for the development and the amount of the maximum adopted charge that could have been levied at the time the charge is paid;
  • an amount representing the increase in the consumer price index for the period starting on the day the charge is levied and ending on the day the charge is paid.

(See clauses 88 and 96 of Sustainable Planning and Other Legislation Amendment Bill.)

Public policy considerations

Finally, I would like to make some observations from a broader public policy perspective of some aspects of the new infrastructure charges regime.

Capped infrastructure charges

The Draft SPRP states maximum adopted charges for different classes of development that are to apply uniformly throughout different local government areas.

The maximum adopted charges appear to have been derived from a consideration of infrastructure charges under existing and draft planning scheme policies and priority infrastructure plans within selected local government areas in Queensland. (See Final Report Infrastructure Charges Taskforce (2011), Queensland Government, pp. 62-65.)

At best, it could be argued that the maximum adopted charges are a reflection of the generalised average cost across all local government areas for the supply of trunk infrastructure to service the relevant classes of development. As such the maximum adopted charges have no relationship to the marginal cost of supplying trunk infrastructure to service development in different parts of different local government areas.

The rejection of the marginal cost pricing methodology for financial contributions for trunk infrastructure is contrary to the overwhelming weight of public policy analysis over the last 20 years that is set out in the following landmark reports:

The application of maximum adopted charges rather than a marginal cost methodology for financial contributions for trunk infrastructure has significant public policy implications:

1. First, the price signal which would encourage economic efficiency and effectiveness has been emasculated such that the cost of funding infrastructure to service development in an outer suburban greenfield area is the same as an infill area.

2. Second, it results in significant cross subsidies from local government ratepayers and SEQ distributor-retailer customers to landowners and developers.

3. Third, it encourages the development of fringe or remote greenfield areas at the expense of infill areas.

4. Finally, but not least, the funding of cross subsidies will result in increased rates and user charges to landowners and customers thereby worsening the cost of living pressures especially on those least capable of affording it. As such, this reform will have a regressive impact on taxpayers.

Housing affordability

The short title of the Amended SPA as the Sustainable Planning (Housing Affordability and Infrastructure Charges Reform) Amendment Act, would indicate that infrastructure charges are adversely affecting housing affordability in Queensland and that the Amended SPA will improve housing affordability.

The Final Report of the Infrastructure Charges Taskforce supports this when it states that where infrastructure charges are "set too low, local government will under recover money to pay for infrastructure. Set too high, projects will not proceed and housing affordability will be further eroded." (See Final Report Infrastructure Charges Taskforce (2011), Queensland Government, pp. 62-65.)

Whilst this statement is literally correct, the Final Report does not acknowledge the findings and recommendations of the Productivity Commission and the Henry Tax Review which:

  • first, endorse the appropriateness of infrastructure charges that relate to the cost of the provision of infrastructure to service development; and
  • second, indicate that infrastructure charges that are not related to the cost of provision of infrastructure to service development such as capped infrastructure charges are inappropriate from a public interest perspective.

In relation to the impact of infrastructure charges on housing affordability, these landmark reports relevantly provide as follows:

  • Industry Commission Report on Taxation and Financial Policy Impacts on Urban Settlement, 1993 –

An apparent dilemma facing governments is the need to promote efficiency (and relieve fiscal stress) through user pays policies for publicly provided infrastructure, while keeping accommodation ‘affordable’ and ‘accessible’ to those on lower incomes. There is apprehension that the reforms of charges and taxation may lead to unacceptable escalation in housing prices… For the reforms advocated in this report, there do not appear to be grounds for these concerns. (pp. 8–9)

  • Productivity Commission Report on First Home Ownership, 2004 –

In summary, greater use of upfront development charging is unlikely to have any substantial effect on housing affordability, irrespective of whether infrastructure was previously subsidised… (p.165)

The claimed cost savings and improvements in affordability from reducing reliance on developer charges for infrastructure appear overstated. (p.167)

  • Australia's Future Tax System, 2009 (Henry Tax Review) –

Findings:

Infrastructure charges can be an effective way of encouraging the efficient provision of infrastructure to areas where it is of greatest value and of improving housing supply. Charging for infrastructure may be a more effective means of allocating resources than regulating land release.

Where land supply is constrained, well-designed infrastructure charges are more likely to be factored in to the price that developers pay for raw land, than to increase the price of housing in the development where the charge is levied. However, where infrastructure charges are poorly administered – particularly where they are complex, non-transparent or set too high – they can discourage investment in housing, which can lower the overall supply of housing and raise its price.

Recommendation 70:

COAG should review infrastructure charges (sometimes called developer charges) to ensure they appropriately price infrastructure provided in housing developments. In particular, the review should establish practical means to ensure that these charges are set appropriately to reflect the avoidable costs of development, necessary steps to improve the transparency of charging and any consequential reductions in regulations. (p.93)

In short, there is a case for the review of the previous infrastructure contributions regime to improve its transparency and thereby provide certainty for stakeholders.

However, there is no persuasive evidence that supports the conclusion that existing or proposed infrastructure charges calculated and imposed in accordance with the methodology applicable to priority infrastructure plans (or infrastructure charges plans) do not relate to the cost of provision of necessary trunk infrastructure and as such would operate as a tax.

Indeed the balance of evidence, in particular the reviews carried out by the Queensland Competition Authority on local government priority infrastructure plans prepared under the previous infrastructure contributions regime, would indicate that the draft priority infrastructure plans appropriately priced trunk infrastructure, and if anything, under-priced that infrastructure.

Furthermore, the implication that the new infrastructure charges regime involving as it does capped infrastructure charges will improve housing affordability is not supported by reports of the Productivity Commission and the Henry Tax Review.

Rather, it is apparent that capped infrastructure charges will adversely affect housing affordability in those areas (generally inner city suburban areas) with previously lower infrastructure charges which will be increased in order to offset the capping of higher infrastructure charges applicable to other areas (generally outer fringe or remote greenfield areas).

Therefore, perversely, it is likely that increased infrastructure charges in some areas will operate as a tax and adversely impact on housing affordability in those areas.

This article is based on a presentation to a seminar of the Planning Institute of Australia delivered in Brisbane on 26 July 2011.

 

 

 

 

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal advice. Please seek your own legal advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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