Let’s get serious about value capture to fund infrastructure.

Of the many challenges the new Andrews Government has, perhaps the most widespread is the little understood $34 billion transport challenge posed by level crossings.

Andrews has promised 50 level crossing separations, and this is a promise that must be kept. However, there may be more imaginative ways to fund the issue using, amongst other things, superannuation.

The separation of road and rail does not at first seem like a critical issue – but it is. In fact it is the hinge point issue for Melbourne’s transport infrastructure.

Level crossings are the single biggest restricting factor on increasing train usage in Melbourne.

Melbourne has 172 level crossings in the Urban Growth Boundary. Sydney, by comparison has only eight. If you put more trains on the network then the level crossings stay shut longer and the roads clog up.

How bad is this problem in reality?

If you were to put enough trains on the Dandenong line to meet current demand – not future demand – then the level crossings along the Dandenong line would be shut for the entire morning and evening peak period. One doesn’t need to be a town planner to realise that such a block to traffic flow would cause road chaos.

Even on less busy lines most public transport experts will tell you that for public transport to be truly effective, service needs to be so frequent that the time table doesn’t matter. The studies show this to be a frequency of eight minutes or less to reach this point.

That would mean on any given single line level crossing a train would pass one way or the other each four minutes – and with a total time of two minutes from closing to opening that means every level crossing closed two out of every four minutes on single line crossings. On the multiple line crossings it is more often – perhaps permanent closure.

Only two grade separations were done in the Kennett government and two in the Bracks/Brumby governments according to former Planning Minister Matthew Guy.

The Baillieu/Napthine government promised 10 in the first term and didn’t deliver them. Now the Andrew’s government has promised 50. Will they deliver?

It is estimated that the average cost to remove crossings is around $200 million each – times 172. That is $34billion in total or $10 billion for the promised 50.

How can Victoria pay for this?

Infrastructure like level crossing separation currently is funded through debt and taxation via the government. Why not look to offset the costs of development through imaginative ‘value capture’ mechanisms?

If a level crossing is removed, property values in the area will see a windfall increase in value as shopping quality improves and congestion is lowered. Windfall gain from infrastructure investment or planning changes is currently captured in four places: the property owner, local government through council rates, state government through stamp duty and federal government through Capital Gains Tax.

Take Fisherman’s Bend for example. The changed planning rules created huge gains for developers and the three levels of government. But none of that windfall gain has been captured to pay for the public infrastructure, like schools and parks, which are needed to make that development successful. The tax payer will have to fund it.

Today our community does not capture that value to help pay for the infrastructure that creates the value. What a missed opportunity. We should capture that value.

The Andrews Government should not repeat the Fisherman’s Bend mistake with level crossings. Let’s try something new.

The superannuation industry has $1.8 trillion under management and will grow to $3 trillion over the next 10 years. It is looking for a home for investment. Can we create an investment structure that works?

The Andrews Government should take the lead and negotiate restructure of windfall gains away from land owners and government to create a business case for superannuation to invest and fund some of the level crossing separation and perhaps other infrastructure projects.

It would be a tough negotiation to get three levels of government to give up some of that revenue and for property owners also to give up part of the windfall. But it would be fair.

And who would win if this structure was succesful?

Government would have lower need to borrow and lower the need to tax. We all win. Superannuation funds would win – ie all of us – through our retirement.

Wouldn’t it be great if our superannuation could not only improve out bank balance on retirement, but also improve the infrastructure of our country for our retirement – reducing the need for us to spend?

Lets be imaginative on how we fund the promise that must be kept. Level crossings just happen to be the issue that may provide the test case.

Perhaps a debate around the funding issue could reignite longer term thinking and better policy across a broad range of areas and re-engage democracy. We have been lacking long term thinking in planning and infrastructure funding for some time. We need to bring it back. Level crossings just might do it.

Andrew MacLeod is a Non-Executive Director of New York Cornerstone Capital and a former CEO of the Committee for Melbourne.

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