Special levy could be needed for Suburban Rail Loop funding hole, experts say

Victoria could be forced to impose new taxes or levies to pay for the $34.5 billion Suburban Rail Loop East as the Andrews government faces a multibillion-dollar funding hole in its flagship project.

Economists and property tax experts say the revenue measures proposed in the SRL East business case would raise billions of dollars less than what the government needs.

Suburban Rail Loop construction in Clayton last year.Credit: Jason South

“The maths would say you’re not going to get to remotely close to whatever the target is,” said Nigel Stapledon, a former Westpac chief economist and now a researcher in property economics.

Victoria has committed $11.8 billion to the new underground rail line between Cheltenham and Box Hill and secured $2.2 billion from the Albanese government ahead of tunnelling starting in 2026.

But the SRL business case is based on the Commonwealth boosting its contribution to $11.5 billion – about one-third of the total cost.

The business case also aims to raise the same amount from “value capture” charges on properties around the new train stations that increase in value because of the project. Those measures are a commercial property stamp duty supplement of less than 1 per cent and contributions from residential property developers – both set to apply from 2025 – and a commercial car park levy, the business case says.

The Victorian Auditor-General’s Office said in September last year there was evidence the $11.5 billion value capture target “may not be achieved” and that the Department of Treasury and Finance had advised the government in August 2021 about “options for mitigating the forecast shortfall”.

Treasury has previously rejected freedom of information requests from The Age for its advice about SRL revenue measures, citing cabinet confidentiality.

The government on Friday refused to say what advice it had received about covering the revenue shortfall and did not answer questions from The Age about whether it was considering additional levies.

The government did, however, rule out a direct levy on homeowners – but experts say that would be the best way to pay for the project.

Stapledon said the most efficient method of clawing back some growth in property values around the SRL train stations would be to impose a broad land tax.

“As the value of land rises, then the people who own that land start paying a bit more. But if you exclude residential you exclude the major part of the benefit,” he said.

University of Sydney housing and property research fellow Cameron Murray agreed that the SRL’s proposed funding measures would raise only a fraction of the $11.5 billion target.

Murray said the state could raise more by developing commercial properties around the stations or by imposing a special “betterment levy” on all residents and businesses – a common tool used to pay for major projects globally.

Suburban Rail Loop Minister Jacinta Allan.Credit: Eddie Jim

Melbourne’s City Loop rail line, the Gold Coast’s G:link light rail project and London’s Crossrail – which the SRL references as a model for using value capture successfully – were all partly funded with special levies added to council rates and paid by residents or businesses.

“The benefits of citywide infrastructure are actually felt not just by those who live near the train stations ... [so] I think that’s a reasonable way to go about it,” Murray said.

A spokesman for SRL Minister Jacinta Allan said the revenue measures were still being finalised, but ruled out anything that targeted residential property owners.

“Suburban Rail Loop stations will attract investment to the surrounding neighbourhoods, raising the value of land, and we’ve been clear that large property developers profiting from SRL will help pay for it,” the spokesman said.

“The Victorian and Commonwealth governments have already committed $14 billion for SRL East – that’s more than enough for what we need to get tunnel boring machines in the ground by 2026.”

The SRL Authority has taken planning control over a 1.6-kilometre area around new stations at Cheltenham, Box Hill, Clayton, Monash, Glen Waverley and Burwood. The authority intends to develop them into denser housing and employment hubs.

It says that by 2056, the number of people living in the six “precincts” will more than double, from 131,00 to 306,500, and the number of jobs will almost triple to 353,500.

Grattan Institute transport and cities program director Marion Terrill said a narrow surcharge on commercial property sales and developer levies would discourage the type of investment the SRL was supposed to trigger, and would also undermine the state’s policy to remove commercial stamp duty.

“The government has made a case that it is city-shaping and so it makes sense for the whole state to contribute to it,” Terrill said.

Prosper Australia research director Tim Helm said taxing windfall gains on properties close the SRL stations was “clearly fairer than hitting up the general taxpayer”, but it was a mistake to exclude residential owners.

“The SRL and upzoning around stations will massively boost land values - there’s just no justification for letting homeowners get rich when they sell land at values massively inflated by rezoning,” he said.

Opposition transport infrastructure spokesman David Southwick said the Andrews government needed to explain how Victorians would pay for the SRL East, be it higher ticket prices, more debt or value capture taxes.

“Serious questions need to be asked of the value for money and community benefit of this project,” he said.

Property Council Victoria executive director Cath Evans said any new taxes imposed should replace existing ones already paid by landowners, including land tax, rates and stamp duty. Properties within rezoned SRL precincts may also be liable to pay the state’s new Windfall Gains Tax.

“It is critical that government provide certainty on all these issues before the project gets under way,” she said.

The SRL East is due to open in 2035 and is envisaged as the first leg in a 90-kilometre loop through the northern suburbs to Melbourne Airport by 2056, and further west to Werribee.

Allan announced on Tuesday that the state had selected a consortium of builders including CPB Contractors, Ghella and Acciona Construction as the preferred bidder for the contract to tunnel the first 16 kilometres of the project.

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