State infrastructure provider powers
A State infrastructure provider may impose a condition on a development approval (called a State-related condition) for infrastructure or works to protect the operation of infrastructure associated with State-controlled road infrastructure, public passenger transport infrastructure, railways, ports and airports (Bill: proposed new section 666).
A State-related condition cannot be lawfully imposed by a State infrastructure provider for any other State infrastructure such as education and emergency services. A local government also has no power to impose a condition for State infrastructure.
Local government reimbursement
A State infrastructure provider which has imposed a State-related condition may require a local government to reimburse the State infrastructure provider for levied charges for local government infrastructure which has been replaced by the State infrastructure the subject of the State-related condition (Bill: proposed new section 669).
The proposed capped framework provides for arrangements for infrastructure agreements which are materially the same as the current capped framework and previous uncapped framework other than for the following changes:
- Public sector entity – A distributor-retailer is declared not to be a public sector entity (Bill: proposed new section 627) with the following consequences:
- a distributor-retailer cannot enter into an infrastructure agreement under the SPA other than where a local government or other public sector entity is a party (Bill: proposed new section 677);
- a distributor-retailer is not required to give a water infrastructure agreement it enters into under the SEQ Water Act to a local government (Bill: proposed new section 673).
- Obligation to negotiate in good faith – A local government, other public sector entities, applicants and other entities have a non-justiciable obligation, where an infrastructure agreement is proposed, to negotiate the infrastructure agreement in good faith (Bill: proposed new section 671).
The proposed capped framework provides for appeals to the Planning and Environment Court and a Building and Development Committee, which are materially the same as the current capped framework other than for the following matters:
- Infrastructure charges notices errors – An appeal is provided for in respect of the following errors in an ICN (Bill: proposed new sections 478(2)(b), (c) and (3) and 535(2)(a), (b) and (3)):
- the application of the adopted charge but not the adopted charge itself;
- the working out of additional demand for a development;
- a decision about an offset and refund but not the establishment cost of trunk infrastructure in the LGIP or the value of the infrastructure recalculated in accordance with the method in the charges resolution.
- Conversion application – An appeal is provided for in respect of a refusal or deemed refusal of a conversion application to convert non-trunk infrastructure to trunk infrastructure (Bill: proposed new sections 478A and 535A).
Policy implications of the proposed capped framework
Changed policy objectives
The policy objectives of the Bill are to:
The policy objectives of the Bill are substantially different to the following policy objectives of the current capped framework and previous uncapped framework (SPA: section 625):
- to seek to integrate land use and infrastructure plans; and
- to establish an infrastructure planning benchmark as a basis for an infrastructure funding framework; and
- to establish an infrastructure funding framework that is equitable and accountable; and<
- to integrate State infrastructure providers into the framework.
A comparison of the policy objectives of the proposed capped framework with the current capped framework and previous uncapped framework indicate the following:
- Accountability – The policy objectives of certainty, consistency and transparency of the proposed capped framework are encompassed within the broader accountability objective of the current capped framework and previous uncapped framework.
- Integration and equity – The policy objectives of local government sustainability and development feasibility of the proposed capped framework do not encompass the broader policy objectives of integration and equity of the current capped framework and previous uncapped framework and indeed relate only to the interests of local governments and developers without consideration of the interests of other stakeholders such as landowners.
- Economic efficiency – The policy objectives of the proposed capped framework, current capped framework and previous uncapped framework do not purport to address the broader policy objective of economic efficiency.
The proposed capped framework is likely to have significant public policy implications given that it does not adequately address the broader policy objectives of integration, equity and economic efficiency.
The proposed capped framework, like the current capped framework and previous uncapped framework, integrates land use and infrastructure planning reasonably well with the LGIP included in a local government planning scheme, being required to identify the following (Bill: proposed new section 627):
- Priority infrastructure area (PIA) – The PIA within which 10-15 years of land for future growth for non-rural purposes is to be serviced by trunk infrastructure.
- Planning assumptions – The planning assumptions for residential and non-residential growth in the PIA.
- Plans for trunk infrastructure – The plans for trunk infrastructure which identify the establishment cost and indicative delivery timeframes for trunk infrastructure to service the PIA.
In this regard it is relevant to note that the Productivity Commission has previously recognised for the previous uncapped framework that in Australia "only Queensland's longer term indicative infrastructure delivery timeframes provide insights for town planners looking to make longer term planning decisions." (PC 2011:193)
The proposed capped framework, like the current capped framework, does not achieve the primary goal of an infrastructure charge; namely to ensure cost recovery for the provision of infrastructure by a local government.
The Local Government Association of Queensland has stated that under the current capped framework there is an estimated shortfall between infrastructure charges and the cost of providing infrastructure to new development of around $480 million annually (LGAQ 2013:ii).
The proposed capped framework, like the current capped framework, by imposing capped infrastructure charges, has in essence, prioritised accountability (in particular certainty) over cost recovery.
However no cost benefit analysis has been released by DSDIP to establish that the benefits arising from certainty exceed the $480 million annual costs for foregone infrastructure charges as well as the unquantified costs of social inequity and economic inefficiency associated with the proposed capped framework.
The proposed capped framework, like the current capped framework, therefore does not integrate infrastructure and land use planning with infrastructure funding as was the case with the previous uncapped framework; which admittedly also imposed additional costs arising from the uncertainty of that framework.
In this regard it is also relevant to note that the Productivity Commission has previously recognised, in relation to the previous uncapped framework, that "Brisbane/South-East Queensland was found to have the strongest links between budget funded initiatives and priorities outlined in their metropolitan and infrastructure plans." (PC 2011:192)
Basic policy objective
The basic policy objective of any infrastructure planning and charging framework must be to ensure the integration of land use, infrastructure and funding such that infrastructure is funded so that it can be constructed prior to or current with development to ensure that existing infrastructure networks are not overwhelmed by new demand.
The proposed capped framework and current capped framework are therefore unlikely to encourage this basic policy objective, given the lack of integration between infrastructure and land use planning and infrastructure funding.
The proposed capped framework also does not expressly or impliedly encourage the provision of infrastructure and serviced land in a manner which encourages equity.
In particular the proposed capped framework does not encourage the following:
- Horizontal equity – Those persons that benefit from infrastructure should be the persons that pay for the infrastructure (benefits principle). This clearly is not the case given that capped charges are calculated by means of an average cost approach.
- Vertical equity – Those persons that have the greater ability to pay should contribute more towards the cost of providing infrastructure than do those who have a lesser ability to pay (liability-to-pay principle).
In particular the proposed capped framework, like the current capped framework, encourages the following inequities:
- Inequity between developers – The developers of low cost development fronts (generally infill development undertaken by smaller entrepreneurial developers) will subsidise the higher cost development fronts (generally greenfield or brownfield development undertaken by larger institutional developers).
- Inequity between landowners – The landowners of lower cost development fronts (generally in infill locations) will subsidise the landowners of higher cost development fronts (generally in greenfield or brownfield locations).
The proposed capped framework, encouraging as it does horizontal and vertical inequities, is therefore likely to give rise to further issues of political unacceptability from landowners, smaller entrepreneurial developers and local governments in the short to medium term.
Economic efficiency issues
The proposed capped framework, to the extent that it does not provide for full cost recovery, does not encourage the economically efficient provision of infrastructure and serviced land.
In particular the proposed capped framework does not encourage economic efficiency in the following respects (IC 1993:102):
- Productive efficiency – The total average cost for infrastructure and serviced land should be minimised by developing land where the total environmental, social and financial cost of providing additional infrastructure and serviced land is the lowest. In general terms this is likely to be in locations near serviced land.
- Allocative efficiency – The price for infrastructure and serviced land should accordingly reflect the costs incurred in its provision and should not be distorted by taxes, subsidies or other measures. The price for infrastructure should therefore reflect its marginal cost; that is the cost of increasing the capacity of infrastructure to produce one more unit of service to satisfy demand, rather than its average cost.
- Dynamic efficiency – The infrastructure and serviced land to be provided in the short term should also impose over the long term, the least infrastructure cost, whilst providing the maximum amount of choice for development.
The proposed capped framework encourages non-rural settlement patterns which are not economically efficient and are likely to result in dead weight losses that will impose long term financial costs on State and local governments, smaller entrepreneurial developers and some landowners.
Productivity Commission assessments
The Discussion Paper which preceded the Bill for the proposed capped framework (DSDIP 2013) and the Report of the Infrastructure Charges Taskforce (ICT 2011) whose recommendations were implemented in the current capped framework, do not refer to or expressly consider the analysis of developer contributions undertaken by the Productivity Commission or the Henry Tax Review.
It is a concern that the public policy recommendations of the Productivity Commission and the Henry Tax Review have not been implemented in relation to the proposed capped framework and the current capped framework. The following recommendations of the Productivity Commission and the Henry Tax Review are relevant:
- 1993 Report on Taxation and Financial Policy Impacts on Urban Settlement:
- Charges should, wherever possible, reflect any significant locational differences in the costs of providing urban infrastructure. Where they cannot do so, they should at least seek to avoid systematic locational bias (IC 1993: chapter B3, section 3.4).
- While it is necessary to charge explicitly for costs that are common to all developments to transmit efficient location incentives within cities, cost recovery is desirable for reasons of efficient resource management and decision making in relation to the provision of new infrastructure (IC 1993: chapter B3, section 3.5).
- 2004 Inquiry Report on First Home Ownership:
Recommendation 7.1 –Developer charges (and charging for infrastructure generally) should be:
Recommendation 7.2 –Investments in items of social or economic infrastructure that provide benefits in common across the wider community should desirably be funded out of borrowings and serviced through rates, taxes or usage charges.Charges are more likely to satisfy the above principles if the processes for establishing and applying them are sound and transparent. Further, efficiency would be enhanced if charging regimes provide developers with some flexibility in the timing of developments and the design of the infrastructure (PC 2004:177).Recommendation 7.3 –Authorities and utilities imposing developer contributions and charges should:
- necessary — with the need for the services concerned clearly demonstrated;
- efficient — justified on a whole-of-life cost basis and consistent with maintaining financial disciplines on service providers by precluding over-recovery of costs; and
- equitable — with a clear nexus between benefits and costs, and only implemented after industry and public input (PC 2004:177).
The Commission recognises that these principles and practices ostensibly apply already to much existing charging for housing-related infrastructure. There is also substantial regulatory oversight of the charging practices of utilities. However, especially at the local government level, current practice provides scope for improvement (PC 2004:177).
- follow guidelines based on principles set out in recommendations 7.1 and 7.2 and be subject to independent regulatory scrutiny;
- provide for 'out of sequence' development if developers are prepared to meet the cost consequences;
- be open to proposals for alternative infrastructure arrangements that meet the needs of the households concerned;
- allow appeals on the amounts charged, or their coverage; and
- be accountable for how money raised from charges is spent.
- 2009 Australian Future Tax System (Henry Tax Review):
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.
- 2011 Performance Benchmarking of Australian Business Regulation: Planning Zoning and Development Assessments:
Broadly, the appropriate allocation of capital costs hinges on the extent to which infrastructure provides services to those in a particular location relative to the community more widely. The Commission has previously enumerated the following principles:
- use upfront charging to finance major shared infrastructure, such as trunk infrastructure, for new developments where the incremental costs associated with each development can be well established and where such increments are likely to vary across developments. This would also accommodate 'out of sequence' development
- infill development where system-wide components need upgrading or augmentation that provide comparable benefits to incumbents, this should be funded out of borrowings and recovered through rates or taxes (or the fixed element in periodic utility charges)
- for local roads, paving and drainage it is efficient for developers to construct them, dedicate them to local government and pass the full costs on to residents (through higher land purchase prices) on the principle of beneficiary pays
- for social infrastructure which satisfies an identifiable demand related to a particular development (such as a neighbourhood park) the costs should be allocated to that development with upfront developer charges an appropriate financing mechanism
- for social infrastructure where the services are dispersed more broadly, accurate cost allocation is difficult if not impossible and should be funded with general revenue unless direct user charges (such as for an excludable service like a community swimming pool) are possible (PC 2011).
- 2014 Public Infrastructure Draft Report:
- Developer contributions are up-front contributions that property developers are required to make to infrastructure associated with the land they develop. ... This has been a contentious issue because many infrastructure costs previously recovered over time from home owners through utility charges and council rates are now recovered up-front from developers. However, such a shift can be justified on economic grounds. It gives developers an incentive to take account of a wider range of infrastructure costs when deciding where and how to develop land, which could facilitate more efficient provision of housing and associated infrastructure (Henry et al. 2009; PC 2004) ... (PC 2014:147-148).
- In principle, developer contributions should only be made to the extent that infrastructure is attributable to the properties being developed. This is straightforward for infrastructure that is clearly related to a developed property, such as that linking a property to a local network. It is less straightforward for networked infrastructure shared with other developments, such as water mains. Ideally, the incremental cost attributable to each property would be reflected in developer charges. For social infrastructure that provides broad-based benefits to the community, such as a library, government funding from a broad-based revenue source can be more appropriate than developer contributions. The principle of apportioning only attributable costs to developers has been embodied in legislative arrangements in New South Wales, Queensland, Western Australia and Tasmania (PC 2014:147-148).
The state government's proposed capped framework also does not take into account the recommendations of the Commonwealth Commission of Audit in relation to the financing of infrastructure or the fiscal strategy of the 2014 Commonwealth Budget released on 13 May 2014.
The Commission of Audit provides the following recommendations in relation to the role of government, in particular the Commonwealth government, in financing infrastructure:
- a single funding pool to be set aside and available for allocation to the States on a formulaic basis, including appropriate funding for maintenance and disaster mitigation with the Commonwealth having no involvement in project selection;
- eligibility for access to the funding pool would be conditional on each State having in place robust project evaluation and governance processes including cost benefit analyses that meet relevant criteria set by the Commonwealth;
- Financial Assistance Grants paid to local governments for local roads and made through the States should be included in this arrangement; and
- as part of the consolidation, the Government should reconsider whether the Nation-building Funds should be maintained in their current form or instead rolled into the single funding pool. (NCA 2014:34)
As envisaged by the Commission of Audit, the 2014 Commonwealth Budget sets the groundwork for a renegotiation of Commonwealth and State financial arrangements in relation to the funding of economic and social infrastructure.
Whilst most attention has focused on the impact on individual incomes of short term fiscal measures to reduce welfare entitlements and increase taxes, it is the medium term fiscal strategy that will ultimately determine long term incomes.
The medium term strategy involves redirecting existing spending from entitlements and future expenditure on social infrastructure, in particular schools and hospitals, to economic infrastructure, in particular, transport infrastructure.
Relevantly, the Budget is intended to deliver $50 billion of expenditure on economic infrastructure, comprising some $40 billion of already committed funding together with a $11.6 billion Infrastructure Growth Package, which is estimated to contribute to $125 billion of additional infrastructure adding approximately 1% to gross domestic product (Cth Budget 2014).
However, the investment in economic infrastructure of National interest has been at the expense of Commonwealth grants for social infrastructure to Queensland state and local governments. In particular:
- Federal Assistance Grants – The Commonwealth has reduced the Federal Assistance Grants to Queensland local government by some $182 million by removing the indexation of the grants to take account of inflation and population increases (LGAQ 2014).
- State government grants – The Commonwealth has also significantly reduced grants to the State government for health and education by cancelling some existing arrangements and limiting the indexation of grants to the consumer price index rather than medical inflation costs which are generally about two to three times higher than normal inflation rates (Nicholls 2014).
The reduction in grants for social infrastructure to Queensland State and local governments will inevitably result in a reduction of the funding and delivery of economic infrastructure by State and local governments. This raises further policy concerns as to the appropriateness of the proposed capped framework which will further constrain the funding and delivery of development infrastructure by local governments.
Reforms similar to current capped framework
The proposed capped framework is not significantly different to the current capped framework.
The proposed capped framework seeks to improve the current capped framework by introducing reforms principally for the administration of offsets and refunds for the provision of work and financial contributions for trunk infrastructure.
In particular the proposed capped framework introduces the following reforms:
- Identified offsets and refunds – A local government must identify an offset and refund in an ICN.
- Recalculation of the cost of infrastructure – A local government which is requested by an applicant, must recalculate the establishment cost of trunk infrastructure in accordance with the method for working out the cost of trunk infrastructure in its charges resolution consistent with the parameters identified by the Minister.
- Conversion of non-trunk infrastructure – A local government which receives a conversion application must consider whether to convert a non-trunk infrastructure contribution to trunk infrastructure.
- Appeals – An applicant is given appeal rights to review a local government decision in respect of an offset and refund (other than a recalculation decision) and a conversion application.
Impact of proposed capped framework
The proposed capped framework will impose the following additional financial costs on local governments:
- Administrative costs – The cost of the determination of ICNs, recalculation requests, conversion applications and appeals; albeit these costs can be recovered by a local government through a review of its cost-recovery fee schedule.
- Reduced levied charges – The cost of the reduction of levied charges from higher offset and refund values; estimated by the LGAQ as being in the vicinity of $480 million annually.
That said, the proposed capped framework does provide greater certainty for developers. It will reduce the cost of the administration of an offset and refund for developers and, on balance, is likely to be less costly to administer than the current capped framework.
Enduring policy issues remain
Whilst the proposed capped framework does provide a net improvement on the current capped framework, it has not addressed the more fundamental and enduring public policy issues of lack of integration, inequity and economic inefficiency associated with the current capped framework and which the previous uncapped framework had purported to address, consistent with the recommendations of the Productivity Commission.
It is therefore unlikely that the benefits of the proposed capped framework in terms of increased certainty will be outweighed by the financial cost of some $480 million of under-recovered infrastructure charges and the unquantified costs of likely social inequity and economically inefficient settlement patterns. This is especially the case given the further annual reduction of $182 million in grants to local governments and the much more significant reductions in grants to the Queensland government resulting from the 2014 Commonwealth Budget.
Furthermore the financial impacts on local governments, landowners and entrepreneurial developers is likely to give rise to further political unacceptability in the short to medium term.
Further policy review inevitable
In conclusion, whilst the Queensland government is to be congratulated for improving the current capped framework, the proposed capped framework is clearly inconsistent with the policy principles for developer contributions recommended by the Productivity Commission and does not take account of the proposals for reform of Commonwealth and State financial arrangements for infrastructure outlined in the Commission of Audit and the fiscal constraints imposed on Queensland state and local governments by the 2014 Commonwealth Budget.
It is therefore very unlikely that we have heard the end of infrastructure charges reform in Queensland with the result that future reform in the short term is inevitable.
Sustainable Planning (Infrastructure Charges) and Other Legislation Amendment Bill 2014 (Bill).
Explanatory notes to the Bill (Explanatory Notes).
Integrated Planning and Other Legislation Amendment Act 2003 No. 64 (IPOLA).
Sustainable Planning Act 2009 (SPA).
Montrose Creek Pty Ltd & Manningtree (Qld) Pty Ltd v Brisbane City Council (2013) QPELR 47 (Montrose).
Australian Government (2014) Budget 2014-15: Budget Paper 1: Budget Strategic Outlook (Cth Budget 2014).
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Discussion Paper: Infrastructure planning and charging framework review – Option for the reform of Queensland's local infrastructure planning and charging framework, Department of State Development, Infrastructure and Planning 28 June 2013 (DSDIP 2013).
Industry Commission (1993) Taxation and Financial Policy Impacts of Urban Settlement Volume 1: Report Australian Government Publishing Service Canberra (IC 1993).
Infrastructure Charges Taskforce (2011) Final Report: Recommended Reform of Local Government Development Infrastructure Charging Arrangements March 2011 (ICT 2011).
Krugman P (1997) The Age of Diminishing Expectations, MIT Press (Krugman 1997).
Local Government Association of Queensland (2013), Submission to Infrastructure Planning and Charging Framework Review, Brisbane (LGAQ 2013).
Local Government Association of Queensland Queensland Council's Share the Plan of Federal Budget, News Release, 14 May 2014 (LGAQ 2014).
Low P (2013) Productivity and Infrastructure, Speech to the IARIN-UNSW Conference on Productivity Measurement Drivers and Trends, Sydney 26 November 2013 (Low 2013).
National Commission of Audit (2014) Towards Responsible Government Phase Two Report (NCA 2014).
Nicholls, The Honourable Tim, Treasurer of Queensland, May 15 2014, Brisbane Times (Nicholls 2014).
Productivity Commission (2004) First Home Ownership Inquiry Report Melbourne (PC 2004).
Productivity Commission (2011) Performance Benchmarking of Australian Business Regulation: Planning, Zoning and Development Assessment, Research Report, Volume 1, April 2011 (PC 2011).
Productivity Commission (2013) An Ageing Australia: Preparing for the Future, Research Paper, November 2013 (PC 2013).
Productivity Commission (2014) Public Infrastructure: Draft Report, Melbourne (PC 2014).
Seeney, The Honourable Jeff, Deputy Premier, Minister for State Development, Infrastructure and Planning, Media Statement, Thursday, 17 April 2014 (Seeney 2014).
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