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Standing Committee on Infrastructure, Transport and Cities
Role of transport connectivity in stimulating development and economic activity

YU, Dr Patrick, Chief Executive Officer, Centurion Group

CHATFIELD, Ms Annie, Chief Operating Officer, Centurion Group

ELVY, Mr John, Non-executive Chairman, Centurion Group

CHAIR: I welcome representatives of Centurion to provide evidence today. For the Hansard record, could you please state the capacity in which you appear before the committee.

Dr Yu : I am the Chief Executive Officer of Centurion and we are the authorised representatives of China Railway Engineering Corporation, China Rail.

Ms Chatfield : I am the Chief Operating Officer of Centurion, and I have also been working with Patrick and China Rail for the last seven years.

CHAIR: Although the committee does not require you to give evidence under oath, I should advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing of proceedings of the House. I invite you to make an opening statement before we proceed to discussion.

Ms Chatfield : We would just like to say that our colleagues from China Rail have been to Australia on several occasions recently and are very, very familiar with the work of the committee. Unfortunately, they could not be here today, but they have followed the progress of the committee's operations and give us full authority to speak very clearly on their behalf and the enthusiasm for what it is that you are trying to achieve.

Dr Yu : We should state that it is our intention to express to you and the government of Australia that China Rail wishes to participate and work in partnership with Australia on a government-to-government level for the creation of and discussion on important pieces of infrastructure, connectivity and other issues that will aid national growth.

We have as our partners Australian industry funds. We have our funding partner, China Development Bank. We would like to advise that it is our intention to work hand in glove with Australia for the prosecution of these projects. One of the first projects that we have and for which we are about to submit an unsolicited offer to Premier and Cabinet is for the Maldon-Dombarton rail and the Port Kembla container terminal. That project has since been, in consultation with Minister Constance and Minister Stokes, expanded to include a passenger railway line between Wollongong and Campbelltown to alleviate the congestion on the Appin Way. I am advised by the ministers that this will have the effect of being able to initiate the Macarthur plan, which is approximately 100,000 homes. This would take the freight off the Illawarra line and would also assist by increasing the speed from Wollongong to Redfern to 40 minutes by putting in an eight-kilometre tunnel to avoid all the switchbacks which currently exist between Waterfall and Stanwell Park.

Fundamentally, you will have passenger connectivity from Redfern down to as far as Shellharbour at high speed and you will also have medium-speed passenger services from Wollongong to Campbelltown. The Picton to Campbelltown section will be pure high speed. The Maldon will also be able to carry freight containers and take the load off the metropolitan lines which are from, say, St Mary's to Port Botany, which are causing congestions for the passenger services, because they can use the Maldon and Port Kembla rather than Botany. Our joint-venture partner is also New South Wales Ports. That is the first project we wish to proceed with. We believe that would be a good test and would demonstrate our capabilities of working in Australia with Australian partners. China Rail has been in discussion with various unions. We will be bringing no construction crew, just technical services. We believe that is something we can use to prove that we are capable.

CHAIR: In regard to your Shellharbour to Redfern high-speed rail, what speeds are we talking about?

Dr Yu : It depends—at least 180 kilometres an hour to, probably in sections, 250. The track requires a lot of attention. If we were going to run a number of services, one would make all the stops and one would be—

CHAIR: A through train.

Dr Yu : a through train which would be, say, non-stop. The non-stop from Wollongong to Redfern would be 35 minutes. The idea is to bring the area, for transport reasons, to about where the Sutherland shire is in terms of transport connectivity.

CHAIR: Time of travel?

Dr Yu : Yes.

CHAIR: How is this going to be funded?

Dr Yu : Value capture, value creation. Our exclusive consultants on this are a company called Mecone, a Mr Ben Hendriks and a Mr James McIntosh. Both those gentlemen would have liked to have been here today, but Mr Hendriks is advising Infrastructure New South Wales on how to do value capture on the New South Wales project, and Mr McIntosh is in South Australia advising the SA government on value capture on one of their projects. They are exclusive advisers on economics, value sharing and how large infrastructures, like this, can use value sharing and how it captured with a revenue bond for which we can fund forward up to 20 years.

CHAIR: Is the value capture going to be the result of your securing land and taking uplift or having the state or federal or both governments put in a specific program? Do you have a specific program or plan for value capture?

Dr Yu : The discussion we had with Minister Stokes and Minister Constance is that the Macarthur plan—which is 100,000 homes, and is sorely needed to increase the available stock and, therefore, stabilise housing prices—cannot be activated unless the Appian Way, Picton Road and Oxley are improved, because people living in the area travel between Campbelltown and Wollongong.

To upgrade those roads is approximately $2 billion. However, the provision of a reliable electrified high-speed train service, between Campbelltown and Wollongong, will alleviate the government from that $2 billion expense and enable the activation of the Macarthur plan. It is from the generation of those new homes, from our enabling transport, that the plan is to have a value-creation levy—charge, contribution—from those new homes.

Ms Chatfield : Just to be clear, we are not suggesting that the saving of $2 billion of the roads be transferred into this alternative transport route. We are suggesting that this be something where the government can, genuinely, save. What we are looking at is of value—the details of it I am sure you are familiar with, but we are perfectly happy to submit the document after this event. Unfortunately, [inaudible] could not be here. But the general principle is around the sales of properties who did not have area will contribute towards the cost of the rail structure over a 20-year period.

We were very fortunate that our funders were able to take a very long-term view on funding this particular route. We do not intend at all to touch the fare box. The fare box would still sit under state government control. We do not see the fare box as necessary to fund this project. Would you agree with that, Patrick?

Dr Yu : Yes. The fare box—so that everyone is comfortable that this privatisation will not be vulnerable to the commercialities of privatisation, we would leave the pricing and collection of fares to the state of the New South Wales department of transport. We are, simply, getting our money back from the ability of the state government to activate the Macarthur plan, which is 100 to 150,000 new homes. Without the transport enabler, they cannot activate the Macarthur plan. So it is money coming from homes that could not be built anyway.

We understand that people are very wary of new taxes so, in discussions with both ministers and Mr Angus Taylor, we said, 'How about this? Do not initiate the tax before the infrastructure. Make the tax a condition subsequent to the commencement of the infrastructure, so people know that they are not paying tax into something that will never be built.' We are quite happy to do that, to give everyone full alignment.

CHAIR: What is the quantum of value capture per house that is being created of the 100 to 150,000?

Dr Yu : We have been quite conservative. We have assumed each house to be only 150 square metres—and that is very small—and we have applied $250 per square metre. In reality houses are about 250 to 300 square metres, but let us say 200. So we have been fairly conservative and our numbers work at $250 a square metre assuming each residence is 150. I believe that is a low number.

CHAIR: How much does that raise in tax? Excuse me, I cannot do the arithmetic quickly.

Dr Yu : A lot—$3.75 billion.

CHAIR: What is the cost of the project?

Dr Yu : About that.

CHAIR: That sounds good to me. The other project that has been discussed—the high-speed rail from the Newcastle region to Sydney and onto Canberra—is a priority?

Dr Yu : Yes. We believe that because we are in a position to submit this unsol to Premiers immediately—and we have been instructed by Minister Gay to do so and the Premier has accepted Minister Gay's recommendation—we will submit this unsol immediately. Once we have this project under the contract we will be fundamentally building the first stage of the Canberra to Newcastle high-speed train because the Picton to Campbelltown section, which is 12 kilometres, will be built as pure 300-kilometre high-speed track. So this is stage 1. I have some further diagrams that I would be happy to send you in a couple of days.

CHAIR: Good. With the areas of development around the Canberra-Sydney-Newcastle line, do you have any projection of how many dwellings can be established as a result of this?

Dr Yu : China Development Bank, Mr Chen Hong, me and Mr Baird while he was Treasurer started this discussion in 2012, so this discussion on Newcastle is actually quite mature. Infrastructure New South Wales have been involved since 2012. There is ample opportunity to fund the HSR. The Hume corridor I discussed with Minister Constance 10 days ago and with Minister Stokes. It is their desire for me to build that as well, as they wish to make Mittagong and Goulbourn satellite cities. To avoid congestion at the railway station it has been suggested also that we have auxiliary light infrastructure of a light-rail system within those towns to make sure there is no congestion at a central point. We believe that the Maldon-Campbelltown-Wollongong is done first and then we think the second stage, which is the most valuable, is Hornsby-Wyong, which will go a long way to negate the issues and traffic congestion of the F3 because it deals with the Hawkesbury.

Ms Chatfield : Just to clarify, we have not actually run the numbers on new properties in those areas. We have run the numbers on existing properties—the historical turnover of existing properties—along those corridors and there is still enough value sharing within the turnover of those properties to support this project, so it does not even take into account the development of new properties, which obviously would follow if infrastructure were put in place.

Dr Yu : So we basically run our numbers on the Sydney-Newcastle corridor on existing turnover. If department planning allows new infrastructure near Wyong because of the high-speed train and in the Hunter region, the fallibility is comfortable.

CHAIR: You talk about turnover of existing properties, the resale of houses, the uplift, but that is not subject to any current value capture or capital gains tax, so you are assuming that we can effect a value capture or capital gains tax on such properties?

Dr Yu : Yes. The most relevant evidence is that of the north-west rail link. Along the north-west rail link corridor from announcement to today the average increase in value within three kilometres either side of the alignment has been between 2,000 and 450 per cent increase in value. That is a lot.

CHAIR: That is what I call 'value escape'! Julie.

Ms COLLINS: I am just curious about what role you think the federal government would have in these proposals as they are at the moment.

Dr Yu : I am not an expert on legislation. I am aware of the separation of powers. We would be guided by you. We would very much like your involvement—but I do not know.

Ms Chatfield : I agree with what Patrick is saying, but I think that a piece of infrastructure like this is national and international, and bipartisan. Therefore, I think that is where the federal government—and this committee—is actually very important. It actually brings forward something that I think everyone recognises as necessary. If you have each individual state trying to build various parts of high-speed all by themselves, then you end up with a bit of a mess. Whilst we may be talking in this room about something that is limited to New South Wales, we are also looking—just for information—at a project in Queensland that also involves some high speed. I think this is an opportunity to actually look at how you build such nation-building infrastructure across the board and not just individually, building it state by state, bit by bit. That is where, personally, I would see the federal government having an enormous influence on how this gets rolled out.

Ms COLLINS: I guess that was my point—obviously the high-speed rail proposals have originally been for Melbourne through to Brisbane. You are talking about capturing the value of the uplift of the properties. Which tier of government are you talking to about capturing that value? Are you talking to all three tiers? Are you talking to just state and local government?

Dr Yu : We have spoken to all three. We can concentrate on [inaudible] and make it simpler because we have actually done work with that. We have to Campbelltown City Council, we have spoken to state government and, I believe, we mentioned this with yourself, Chair. One thing that we cannot get ourselves into is the way that we have four different railway gauges in this country because of separations of power. If the federal government does not step in, what you are going to do is have four different high-speed train systems in this country, and that is not going to work. Whoever you choose—and you choose who you believe is the best; I am not selling my brand—you cannot have a Japanese train, a French train and a Chinese train, because it will not work. It has to be one train.

Ms COLLINS: I guess that is the point of my question—that the three tiers of government, obviously, all have a role to play. Does it make it easier for organisations like yours to put up a submission if there is one streamlined way of capturing the value as a nation-building project, as opposed to having to deal with all of the different levels of government? One of the big levers, of course, that the federal government has in terms of getting states to get local governments to agree to a particular framework, if you like, is infrastructure funding. But if you are saying that this project is viable without any funding from the Commonwealth, that removes, essentially, one of our levers in getting the states to all agree.

Dr Yu : You could put a little bit of [inaudible] in!

Mr Elvy : It is not dependent upon funding from the federal government.

CHAIR: But it is dependent on legislation in the form of a value-capture mechanism that is going to capture the uplift of the value. Sometimes these lands will be held by entities that will attract a capital gains tax. Therefore, you would be asking that: that would be quarantined and hypothecated towards the cost; that for others with privately held properties not subject to any capital gains tax, we would need to have an infrastructure and zoning combination to have the transfer of those properties taxed; and that, in the development of new properties, we would need to be able to value capture. If you are looking at the $3.7 billion raised from charging $200 per square metre for each home, that is one way of doing it—and probably a very good way of doing it. Are you looking at the combination to have a value capture system that is comprehensive and so does not penalise any one group too much but attracts transfers of properties, the creation of new properties, the zoning with high urban density around the stations—therefore, whether you are going to look at capturing the stamp duties of the state governments to also have that hypothecated towards the cost?

Mr Elvy : Yes, certainly. But the federal government not only can participate in terms of the legislation but also control a lot of land. Let's face it, there might be an opportunity for that land to be 'given'—I use the word loosely—to us as the infrastructure developers on some attractive long-term leasehold arrangement that will allow us to facilitate development on that land to get back some of the money that we are spending to develop the infrastructure. At the end of the day, as I said, we are not looking for the federal government to put their hand in their pocket financially, but they have ways and means of making this exercise very viable without having to put their hand in their pocket. Also, I am sure there will be situations that will arise where we will need the federal government to be able to step in for compulsory acquisition of some properties because it is a national infrastructure project and it is going to benefit the nation. There are many ways that we are looking to the federal government to assist us but not necessarily with dollars.

CHAIR: Certainly, if in the future you would be looking to complete the high-speed rail that is going from Newcastle to Sydney to Canberra to that southern town Melbourne then, obviously, you will need federal assistance. Is there any particular reason why you are not looking to go from Melbourne through to Sydney in one fell swoop?

Dr Yu : Even in China our current longest alignment is Beijing to Hong Kong. It is 2,700 kilometres. Sydney to Canberra is a pretty big one. Even the Chinese bit off that big one in 150 kilometre bits. It is actually impractical to build the whole thing in one go. There are simply not enough engineers. There are simply not enough human resources in Australia to do that. If we did that we would increase the cost of construction. We would have a big bump in costs for supply materials. We would murder the construction industry. We would because we would suck up steel, concrete, people and engineers. There would be no-one left to do anything else but our project. We thought that we would do the hardest bit. The hardest and most expensive bit, at three times the per kilometre rate, is the bit between Wyong and Central. We do that not because it is easy but because it is hard; to prove that we can do it. Everyone will tell you that is the most dangerous, expensive and tricky piece to do and we want to do that first.

CHAIR: If we are looking at value capture, does Central represent the best opportunity for value capture?

Dr Yu : No, it does not, but that is why we have to run it from Central to Newcastle because the value capture is in the greater Hunter Valley.

CHAIR: A number of conversations have centred around the possibility of having a high-speed rail terminal more in the Homebush Bay region for two reasons: to make it cheaper to go north to Newcastle and to Brisbane and less tunnelling to go to Canberra, so less cost. The opportunity of value capture of creating another CBD, which would be halfway linked between Sydney CBD and Parramatta—with the recent proposals of having fast rail from Badgerys Creek to Parramatta to Sydney—and if that were linked to a high-speed rail at Homebush Bay that would place it equidistant from Sydney to Parramatta. Would that be a consideration of yours?

Dr Yu : We have actually considered that quite carefully. With another consortium, we are working on a fast metro between Parramatta and Central. We believe that, yes, it is cheaper to put a high-speed train through Sydney if you go that way, but most of it would have to be a viaduct. Viaducts are ugly. Viaducts require you to buy more land for the alignment. So the easiest way and the least disruption to the city is a hard, expensive, tough way, and that is a 45-kilometre tunnel. We think that creates the least disturbance. The alignment we propose is Hornsby, Circular Quay, Central, Badgerys Creek, Campbelltown to the Hume corridor.

Mr Elvy : Picton.

Dr Yu : We would also be in a position, if we do all this, to fund a fast metro service from Parramatta through Badgerys Creek to the city. We could do that at the same time.

Mr Elvy : If you have a really good-quality metro line going from Badgerys Creek into the city and then connecting at that point to a fast train, that will give you the result that you are talking about.

CHAIR: Do you mean high-speed rail?

Mr Elvy : High-speed rail, yes.

CHAIR: A fast train from Parramatta to the city—

Mr Elvy : Yes. For instance, if you get off an aeroplane at Badgerys Creek and you want to go to Newcastle, let's say, you can just come in on the metro train and change at Central—or whatever the station is going to be—and then just hop on the high-speed train to go to Newcastle.

Dr Yu : The high-speed train is stopping at Badgerys Creek.

Ms Chatfield : Just to avoid some confusion, there are several proposals, as I am sure you are aware. There is Parramatta Light Rail. There are various metro options. There are about three or four projects that I can think of. We were only saying before we came in here that there probably needs to be a bit of transport master planning for that particular area, because there are several options coming up, some of which are very valid, but you have got to look at them in their totality. So you have got to look at how they all interconnect. It is a very heavily used metropolitan transport area, and what we would suggest is that maybe it is a subject that should have further exploration. We certainly would like to be involved in that, looking at how all these basic proposals can link.

CHAIR: Some of the advice we have received during evidence has been that any federal value capture system should be conditional when we are funding state infrastructure, and the conditions should be that there is master planning of infrastructure, urban planning, urban renewal, densification and zoning and of the road, light rail, metro rail, fast rail and high-speed rail before any federal funding is considered and agreed through value capture.

Ms Chatfield : I could not agree with you more.

Dr Yu : That is 1,000 per cent correct. Hence, we engaged Mr Ben Hendriks and Mr James McIntosh, because this is not just a rail line. Our process has contemplated urban renewal, urban regeneration and greenfield sites. So we are viewing this from infrastructure, urban planning, economic growth and social connectivity, and, yes, we would like the federal government to actually chair such a broad master planning. However, I am concerned that this takes years, so we are going to press ahead with that Maldon bit, because it is a pretty small bit of infrastructure and it will have an immense benefit to the economy of Wollongong and the Illawarra, which sorely requires it.

Mr Elvy : The other reason is that there is a lot of pressure on housing affordability in New South Wales. If we are able to do the Maldon-Dombarton section and release the housing that can then be constructed, that will take pressure off the house prices, because people will move to those locations once they have reliable transport. Therefore, the affordability issue gets addressed in some format.

Ms Chatfield : Can I also add, for your information, that John Elvy is actually vice-chairman of the Property Council, so we are very lucky to have him as our chairman as well. They have done a huge amount of work in this area. We have taken some consolation with other groups. I just remind you of that, if you did not know.

Mr Elvy : We work very closely with the state government.

CHAIR: Do you have a preferred light rail system supplier?

Mr Elvy : Are you talking about rolling stock?


Dr Yu : We are a vertically integrated industry—we build everything. We can build those and we can build them really cheaply. We are happy to build them down here.

CHAIR: Good, because Peter Newman of Curtin University gave evidence. We seem to draw agreement that every city he engages with wants to build light rail. The week after we got evidence from the ACT government about their plans to build 12 kilometres, initially, of light rail. They had been seeking to contract with a German supplier of rolling stock. The ACT government is wanting to come to us for funding. It was posed that we could impose a condition that the federal government act as the collective bargainer, not on behalf of 12 kilometres and 14 trams but maybe 12,000 kilometres and 14,000 trams of light rail rolling stock, find what is the best and then maybe find the critical mass that is required to actually manufacture this rolling stock in Australia. We would get away from having the four or eight rail gauges, different rail systems, and actually, for the first time in our lives, have a common light rail system throughout all of the developing Australian cities to complement other rail systems.

Dr Yu : I could not agree with you more. We would be very happy to participate in the competitive tender or expression of interest with all other light rail carriage suppliers. We had already thought and planned this. We believe, if we were so lucky as to win—there could be two or three such manufacturers in the country manufacturing to the same standards set by yourselves. We are already thinking about taking over some of the land to be vacated by BHP in the Illawarra. Because, remember, we are doing the outer port extension with NSW Ports. We would put our factory there. I think and railway lines, and if a light rail manufacturing facility can be built—because we have the technology—we would be good for probably 2,000 or 3,000 jobs, and we could lower the cost per carriage by 50 per cent.

CHAIR: What I am understanding is that your plans are a mixture of fast rail and high-speed rail from the Illawarra district, with complementary light rail for those areas to develop through to Picton and Campbelltown—which would also be part of the Sydney to Canberra high-speed rail at some point, and Newcastle to Sydney. It is really creating a tri-city area of intense development, uplift, connectivity—then, leading to Canberra, with a holistic plan of urban rail to lead to the high-speed rail. It is much like a set of golf clubs really: you have got your driver, your mid-iron and your putter.

Dr Yu : I have never actually heard anyone put it so well. To use the word 'holistic' project is the best description that I have heard. I think what will happen is that we will all turn Wollongong to Newcastle into a city with a population of 10 million, a megacity, to be competitive on a world scale with high-quality, reliable connectivity.

CHAIR: What would be the best way for the federal government to proceed in asking for expressions of interest? Would it be to ask proponents to suggest their own value capture, or should we nail our value capture system and then ask for expressions of interest based on our value capture system?

Ms Chatfield : I think each one has its different merits. Committees such as this are incredibly valuable, and probably there should be a subcommittee to this committee that seeks further ideas for how value capture is achieved. We certainly have ideas and we are very fortunate that we have some experts working very closely with us, but other people would have other ideas as well. If you wanted to go the way of being prescriptive before you went to EOI—

Dr Yu : That is not a bad idea.

Ms Chatfield : it is an okay way to do it, but I would certainly recommend that you have another one of these hearings, where you focus fundamentally on value capture and value sharing and seek very specific ideas from people as to how that can be achieved. We have not given you much idea. We have given you the generalities of how it is here but we would be very happy to submit a further paper to you about how we thought it could happen. Colleagues, we could do that, couldn't we?

Dr Yu : We know our competitors are actually making busy buying land. We do not think that is the way to do it. We would stick to the knitting, which is to provide the connectivity. Yes, we would obviously ask for a certain amount of land to build on as well, but generally I think it should be a free market. I do not think a road builder should go around buying up land now. I think that is opportunistic. My view is that that is not the way to do it. I think we would prefer to work with the federal and state governments to work out the best way to value what we are putting in so that the levy is proportionate and equitable to the improvement that has been provided. I think that needs to be done in consultation—rather than someone else going and buying Wagga Wagga.

CHAIR: It is important, it would appear, to have an alignment between the federal government, state government and local councils when you are considering high-speed rail linking cities and then urban rail systems linking suburbs controlled by local councils. Again, there is the need for holistic master planning that is considerate of the master funding that is what many of us see value capture to be. We see federal value capture as master funding that demands, or is conditional on, master planning.

Mr Elvy : You have hit the nail on the head. It would be very wise of the federal government to put out an RFP on value capture. You would then get several people coming in with several different models. With respect, this becomes very political, because the value capture argument needs to be sold to the community, and when you are talking about tax in the community it is a political issue.

Mr Yu : Absolutely.

Mr Elvy : It has to be a blend of politically sensible and commercially viable. If you put up the flag and said, 'Come and tell us what value capture argument you are proposing,' you would probably get half a dozen and you would be able to make a value judgement that is nationwide.

CHAIR: This inquiry does invite contributions regarding value capture. We are working on that. There is a provision for you to submit a further paper on that after today's hearing.

Mr Elvy : Specifically on value capture?

CHAIR: That would really be appreciated. It is interesting to note that I was at a chamber of commerce meeting the other day with 100 leading business people and I was meant to talk on value capture, and I asked the room, 'Who knows what value capture is?' I reckon 15 hands went up but five were very questionable, maybe 10. They were relieved when I expressed a view that if the federal government have an unearned benefit—that is, we are collecting capital gains taxes because of a state piece of infrastructure and then local zoning and we are walking away, as we have in the north-west corridor of Sydney for decades now, with capital gains taxes that is an unearned benefit—and if we believe in value capture, we should be contributing that towards the cost. It then makes it more understandable if you have a house that has gone up in value 10 times because of your fellow taxpayer paying for the infrastructure that it is only fair that you share. It is the most equitable and a fairer system of taxing and spreading it as widely as we can and as lightly as we can to achieve a sustainable funding model. I guess that is what we are after.

Dr Yu : To be completely blunt, along the North West Rail Link it is the uninvolved that have benefited, and that is unreasonable. The house owners have made staggering amounts of money just because they bought a house in the right place there 10 years ago. That is value that should have been given to the government to fund the infrastructure. It is unequitable.

CHAIR: Yes. Take the 60 Minutes story on the Cherrybrook station and the various landowners. One homeowner sold the property for over 16 times what he had paid for that property and there would be hundreds of houses like that. Earlier evidence today was looking for the trigger: when does your home become an investment? If you gather with 11 other homeowners and sell it to a developer who is going to rezone it because of infrastructure coming by, you are not selling it as a home. How can we get an average homeowner and an average Australian to realise that they have made their home into an investment and it is reasonable that they pay a tax on the superprofit? It would be even more reasonable if they understood that infrastructure, if we were to be proactive, is definitely being built and paid for by their fellow taxpayer, and the zoning is being affected proactively to give them the maximum uplift and that they really should pay for those things. It is like winning the lottery and then having to buy the ticket for the lottery afterwards. That is what I think we need to do.

There are two situations. One is if there is zoning and infrastructure and the other is if you are teaming up with others to convert your home into an investment. That is when it should attract the value capture capital gains or whatever. That combined instead of stamp duties and property taxes will go a long way to having the best possible model of value capture, especially in light of your proposal of the far-reaching various rail systems not only to link cities but to make those cities more efficient and productive, and give further opportunities for value capture.

Mr Elvy : I think one has to be a little careful as to how they view that scenario. As you have mentioned, the person who is in a housing block of, say, eight or 10 houses whose house individually might be worth $1 million but collectively it might be worth $3 million. That is what has happened and probably will continue to happen as long as the market holds up. That is a benefit that they have accrued only because the developer wants to create a consolidated lot. But you are quite right to say that a house owner who perhaps can redevelop their property on a floor space ratio of two to one but the council then changes that to five to one gets a benefit, and there is a benefit for the house owner which they should contribute to.

It is the same with infrastructure. Roads and rail, historically, always add value to property holdings. If the government decides to put a station 200 metres from your home and your value goes up by 20 per cent or 25 per cent, then that is another argument for value capture. We have to be very careful about it. I had this discussion yesterday. I am on the panel of Penrith City Council. They were talking about a rate per square metre of value capture for developers in areas where they are currently looking to rezone or upscale the floor space ratio. It is a very interesting discussion; but at the end of the day, the developer, if he pays it, is going to pass it on to the end owner, which is the property owner—which comes back to affordability.

CHAIR: We had two or three people giving evidence today who were very critical of councils who were engaging in gouging developers and not just taking section 94 contributions to fund their necessary infrastructure but actually profiting at the cost of projects going forward. Therefore, the idea of having an alignment between federal, state and local councils where we work cooperatively to deliver, for the developer, value in that we are putting in infrastructure, guaranteed zoning and certainty of planning approval in a timely manner—we are uplifting the value and then giving value to the developers in the marketplace and buying that certainty—seems to be the only way of affecting long-term planning, delivering it efficiently and giving companies like yours an ongoing opportunity of development that allows you to advertise your costs of gearing up over a number of projects and a number of decades rather than one project at a time.

Mr Elvy : It really reinforces the argument that I have been trying to espouse for many years now, and that is that I think local government should not have rate capping so they can actually put together proper business plans to be able to raise funds to do major works within their area and therefore they do not have to gouge the developer, they do not have to go out there and do things that they could otherwise do if they were running their business like a small business. Most of them are bigger than most SMEs. They did not have that rate cap, but they had to produce a business plan as a community to say, 'This is why we are increasing your rates to that level, and we are going to quarantine that to do these works.' It makes a lot of sense.

CHAIR: Can that not be a very, very good suggestion—and I think my dear friend Julie agrees, because I saw her face light up—

Ms COLLINS: I was just curious!

CHAIR: That is literally like a land tax that could be quarantined in exactly the same way as the capital gains tax or value capture on the sale with stamp duties. So we quarantine all of these revenues to the essential purpose of infrastructure—

Dr Yu : Central purpose.

CHAIR: but you make it a one-stop shop. The state government works down to get the councils to do this, and they then present their plan—which has been agreed upon with council—to see whether it meets their criteria to get federal funding. The state government is then empowered, as the central agency, to affect retrofitting infrastructure for our cities.

Mr Elvy : The Property Council have been talking to the state government in New South Wales and other states about a very successful opportunity which has been proven overseas in the USA, and that is called 'tax increment financing'—which I am sure you know all about. It is a wonderful way for local government to be able to borrow money to pay for infrastructure to make sites shovel ready, which takes away the added cost the developer has to have, which he passes on, and then the rates that they get from that greenfield site—where they are not get much money at the moment—are quarantined to repay the borrowings. At the moment, the total borrowings of local government is no more than about four per cent of their gross revenue. They can borrow up to 15 per cent of their gross revenue with very good, prudent borrowing procedures. There is a lot of opportunity local government can take that they are not taking, because they are constrained by this rate capping situation.

CHAIR: I am just trying to think forward to possible legislation. You leave the rate-capping situation in place, with the exception of when infrastructure is going to seek federal funding through value capture, at which time the state, in securing that, can make exceptions to the zones around the infrastructure. Then we have the best of both worlds.

Mr Elvy : Yes.

Dr Yu : I think it has to be central. It has to be federal because, with due respect to the councils, their area of interest is too small. They would have conflicts of interest with—

CHAIR: And no master planning.

Mr Elvy : No.

Dr Yu : Correct. The fact is that you are going to have councils trying to do stuff which may not work on a global basis with the federal plan. They can collect the money and you can distribute it according to priority, but I think the federal government has to take the role of the master controller.

Mr Elvy : Yes, I agree.

Dr Yu : The fat controller!

CHAIR: In the criteria that need to be met, the state government is the deliverer.

Mr Elvy : Yes.

CHAIR: I think we have got it. Do you have anything more to offer?

Dr Yu : I would like to thank the chairman. We would like to increase our rate of participation and discussion with you and your team, particularly around the Maldon, as that is really running along. We would like to get your view and further advice on what you think we might have missed out and what we could do very simply to enhance the project even further.

Ms Chatfield : I would support that and say thank you very much. It has been an interesting conversation. We have certainly taken some stuff away with us and I hope you have too.

CHAIR: Certainly. Thank you again for your submission and for the progress we made during our discussion today. As a discussion, not a question and answer session, it was really worthwhile. And thank you for your offer—and I will tell you exactly how to make the response on value capture that you wish to put together. The secretariat will send you a draft transcript of proceedings so that requests can be made to correct any errors of transcription. It would be helpful if you could send the secretariat any additional material that you have offered to provide us. Thank you very much for attending.

Resolved that these proceedings be published.

Committee adjourned at 14:32