Experts raise concern over $35b Suburban Rail Loop’s ‘value capture’ funding approach

Experts worry not enough money will be raised from levies and taxes as hoped to pay for the first stage of the Suburban Rail Loop.

Experts are concerned not enough money will be raised from taxes and levies to pay for the first stage of the Suburban Rail Loop project.

The first stage of the Andrews Government’s new rail line under middle Melbourne is facing a multi-billion dollar black hole, experts have warned.

About a third of the $35bn first stage of the Suburban Rail Loop, which will run from Cheltenham to Box Hill, is supposed to be raised through levies and taxes on land in the area that increases in value — known as “value capture”.

Options canvassed in its business and investment case include car park congestion charges similar to those in the CBD, a commercial stamp duty increase or windfall gain taxes.

Independent advice has raised serious questions whether these methods will come close to raising the $11bn or more Premier Daniel Andrews flagged would be needed as a share of the project funding, however.

Experts have warned that the government’s decision to exclude the family home from these planned taxes has made the task harder, leaving a vast sum to be collected from developers and business.

Victorian Premier Daniel Andrews said $11b or more would be needed as a share for stage 1. Picture: Andrew Henshaw.

Senior Labor figures have also queried the revenue measure, pointing to London’s Crossrail project that realised a much smaller percentage of funding for the UK government.

The Saturday Herald Sun can reveal that the Victorian Auditor-General’s Office raised serious concerns about how the first stage of the loop will be funded in a recent report.

“There is evidence suggesting that the value-capture target may not be achieved,” the VAGO report says.

“Department of Treasury and Funding advised government in August 2021 on options for mitigating the forecast shortfall in value-capture revenue.”

Those options have not been revealed publicly, however.

The Auditor-General went on to say there was “ongoing uncertainty about whether the Australian Government will fund a third of the project” and that the DTF also provided advice

on “the affordability of SRL East for the state should Australian Government funding and value capture funding fail to provide two-thirds of the project funding”.

Grattan Institute transport and cities program director Marion Terrill said it was “very hard to see” how the methods being considered would raise $10bn while excluding residential homes.

She said the CBD’s carparking levy raised about $120m a year and was “peanuts”.

“Excluding one major class of property owners (means) that you narrow the tax base a lot. It just means, where are you going to get this revenue from?”

You add 1 per cent to the transfer tax on commercial properties, this is drag on business activity and it will reduce the claimed benefits of the SRL.

“It’s certainly likely to deter businesses from locating to the precinct.”

Ms Terrill said raising commercial stamp duty could limit SRL’s goal of attracting companies to areas around the station because it would act as a “drag on business activity”.

“These are not actually value capture, because if it happens there is no land value uplift, these charges will still apply.”

“Value capture” was one way the first stage of the SRL project would raise revenue.

Professor Michael Buxton — an environment and planning expert at RMIT University — said money raised would depend on land use and zoning, which was not yet known.

“It’s just totally unsatisfactory in a document that says business and investment case,” he said.

“They didn’t come up with any proper analysis about how they are going to do this, or how much money they might raise.”

Prof Buxton said to fund the project this way the amount of money the government would have to claw back from value capture would be “astronomical” and risked turning precincts into “monstrosities like Southbank” by encouraging giant developments.

“The unsustainable cost is going to drive a massive claw back from value capture and that in turn will determine the land use,” he said.

“That is the reverse of what should happen.

“A proper planning process should decide what sort of community you want to have and get your land use principles in place first … then look at what is feasible to get back in value capture.

“I can see monumental problems coming from the value capture principles, because it’s really going to drive the process.”

Deputy Opposition Leader David Southwick said costs would be worn by communities.

“With less than half the funding required for this project actually secured, local residents and small businesses should not be expected to pick up the funding shortfall just to make the SRL project viable,” he said.

A state government spokesman said the $14bn already committed SRL was “more than enough” to start major works and have tunnel boring machines in the ground by 2026.

“We’ve always been clear that we intend to fund this project of national significance through a range of funding streams, including state and Commonwealth government contributions and a mix of value capture opportunities,” he said.