Australia: Infrastructure contributions reform in Queensland - Part 2

Last Updated: 8 April 2012
Article by Ian Wright

This article concludes the discussion in our previous article, Infrastructure contributions reform in Queensland - Part 1.

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. t results in significant cross subsidies from local government ratepayers and SEQ distributor-retailer customers to landowners and developers.
  3. 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.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Ian Wright
 
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