Infrastructure funding needs more thought

How do you finance new state infrastructure when you have taken the pledge not to use debt or increased taxes?

There is no doubt that Queensland needs new infrastructure with population growth amongst the highest in the developed world, but the cost of that infrastructure is in the billions.

For example, the cross river rail link, comes with a price tag starting at $2.5 bn.

The new state government promises to be innovative in finding a solution, but from the flotilla of kites that flew Tuesday, and immediately nose-dived and crashed, promises and performance are still wide apart.

First up was a suggestion of levies or betterment taxes, almost immediately disowned and replaced with the idea of unlocking extra value from government assets, like the GoPrint land at Woolloongabba, as a result of new infrastructure.

Flogging off government land to pay for infrastructure is not a new concept. (It also looks and smells like privatisation).

In 1882 the Queensland government financed railways by granting government land to the builder paying a rate of 100 acres per one mile of track.

Without the line the land had little value and it was the government’s land to grant. So the uplift in the value of the land caused by the railway paid for the railway.

But these situations are rare, and probably confined to a rapidly developing and largely empty country, where aboriginal rights counted for little.

The cross river tunnel does not fit these criteria.

In the first place, the benefit, is likely to be general to the population as a whole, not to a specific area.

There may be a couple of extra train stations, and possibly the one in town will attract some pedestrian traffic that wouldn’t have otherwise existed, but the uplift in value from the shopping this might generate is unlikely to meet more than a fraction of the cost of the construction.

There may be an increase in the value of the GoPrint site, but this will be in the millions of dollars, not billions.

A developer levy applied to all projects in an area, or a betterment levy applied to all landowners, is more likely to raise significant funds, but has issues (which the government appears to have quickly realised).

Levying developers within a particular radius of the infrastructure would impair the value of sites at best, unless the developers were able to add the costs on to the price they charged the buyer, in which case the product becomes less affordable.

In fact, with a properly constructed taxation system there is little justification for a developer levy of this sort as well-designed infrastructure will lift the value of the real estate because it will become more productive, meaning that the state will experience an enhanced tax take through land tax and stamp duty.

One of the problems with housing affordability in Australia is that governments have actually been at this lurk for a while.

In 2011 it was calculated that all taxes added 36 percent to the cost of a house in Brisbane which amounted to $191,000 at the time.

Governments have gotten used to sticking the cost of all sorts of hard infrastructure, like roads, and even soft infrastructure, things like libraries, to new developments.

This is a tempting honey pot. Large sums are changing hands, and banks are prepared to lend most of it. The government can levy a large tax, and the tax payer will be happy to spend the next 20 years of their life paying it off because it puts a roof over their head.

And it is inequitable. While the new home owner pays the tax, all residents get the benefit. Most are free-riders.

What looks like a magic pudding will come around to give us indigestion, because most of these schemes give the baby boomers yet another free ride, and blight the standard of living of Gens X, Y, Z, AA and beyond.

They’re smart, we gave them a good education, and they won’t stand for it. Woe to the government that is in power, and their aged parents in the nursing homes, when they wake up.

No, a better and more equitable solution needs to be found. There’ll be more kites before too long, and just as well.

This article was first published in The Courier Mail.