Auckland Mayor Phil Goff says he’s keen to explore using value uplift tax to help pay for new infrastructure projects in the city. But the amount of work required to set out the ability to do so equitably means the move could still be some time off.
The funding method would eventually sit alongside a new regional fuel tax the Labour government will allow Auckland to impose. Goff argued that a fuel tax was more sensible than raising rates or applying a congestion charge for driving through the city.
Goff made the comments while addressing media alongside Prime Minister Jacinda Ardern after a Thursday morning meeting regarding Auckland’s housing and transport problems that also included Grant Robertson and Phil Twyford.
Read his and Ardern’s comments on housing here. They were also quizzed on who would pay what for the $5 billion expected cost of Labour’s light rail (or trams) desires for the city, including city-to-airport, to the West and eventually lines East and North.
Auckland transport costs
Ardern said the Auckland Transport Alignment Project process to date had been helpful bringing together government and Auckland Council priorities. The process would be refreshed to integrate the new government’s priorities and work through some issues around funding.
Goff added: “Look, we’re adding 800 cars a week to the roads of Auckland. That is absolutely unsustainable.” Different models around the world showed it was very clear that Auckland had to have a mass transit system.
“What we’re doing in rail is really good – it’ll make a big difference. But we need to have light rail,” Goff said. “And I absolutely applaud the government for its commitment to light rail, initially across the Isthmus…and through to the airport. Equally to the West, ultimately to the East and the North of Auckland.”
This would combat growing congestion and gridlock. “These things take time to build, but there are clear models for it.” Light rail was not an outdated technology, Goff argued: “It’s what countries all over the world are doing, and doing successfully.”
The matters were timing, and what Auckland could contribute to the cost. “And with a regional fuel tax, we can contribute, over a 10-year period something between $1.2-and-$1.5 billion. If we did not have the regional fuel tax, we would have to put rates up by probably around 15%, which would be totally unsustainable,” Goff said.
“Or we would have to introduce a congestion tax which I think in London at the moment is running at $21 a day. The regional fuel tax is, on average, probably $2.60 a week for the average motorist. That is absolutely sustainable.”
Asked whether he was saying that the council would be stumping up $1.2bn of the expected $5bn cost for light rail projects talked about for Auckland, Goff said: “Light rail from memory to the airport will be something between…$2.5-$2.8bn, and to the West it will probably be maybe…$300 million more than the alternative cost of a busway.”
Ardern said the ATAP process would be used to have these ongoing funding split discussions. “We’ve acknowledged the role that central government needs to play, but it comes on both sides,” she said. The discussion Thursday was around what Council could do to make sure it finds efficiencies to be in a position to fund projects to a greater degree to what it’s able to.
“We’ve talked also about the mechanisms we can offer. We’ve always acknowledged that Auckland should have some skin in the game, and that Aucklanders know we have problems we need to resolve. The regional fuel tax allows us to do that, and that’s a mechanism we’d be happy to offer to Council to enable them to deliver these projects,” Ardern said.
Value uplift tax
Goff was also asked whether council could charge targeted rates on value uplift capture around the new transport projects to help fund them. “That’s a concept that I think really needs to be explored,” he said.
“Sometimes when the ratepayer and the taxpayer put in new infrastructure, it creates a massive uplift in the value of properties [around that infrastructure]. And I think in principal it’s fair…if you’re getting a massive uplift in the value of your property that you make a contribution to the infrastructure that lets that happen.”
Goff said he’d talked about the measure in London. “It is quite a complex area, but it’s an area that I think both government and council are committed to exploring.”
It wasn’t something council could bring in immediately. “If you’re going to do it, you would need to do it right, so that it was equitable, and that it was done well. But it’s a concept that certainly should be followed through on by council,” Goff said.
He said he thought there was general agreement across the political spectrum that, “if you get a windfall profit, then you should be contributing some of that towards the cost of the infrastructure that enabled that to happen.”
See this note from Motu on value uplift tax - AKA value capture or betterment tax. It relates to the uplift in land values that can result after a new public infrastructure work is put in which benefits that land. The idea is that those land-owners who benefit from the value uplift from the project - hence standing to profit from it - contribute to helping repay the initial funding for the project.
For example, in Auckland, the inner city rail-loop would have been a prime contender with the value of land near new stations set to rise. I touch upon it in my column earlier this year regarding the government's Auckland infrastructure Mexican stand-offs.
Here's a section of my interview with Productivity Commission chair Murray Sherwin back in March, following the Commission's report on New Zealand's urban planning system, in which it recommends use of value capture tax.
One potential revenue source for councils is the imposition of value uplift taxes. Take an example of any unserviced block of land. Add three-waters and roads, and the value of that land jumps because it’s now usable for dense development.
“So why shouldn’t the council that’s funding the infrastructure claim a slice of that to fund the cost of that infrastructure?” Sherwin asked.
Another example of where value capture tax could work in Auckland is the inevitable rise in values of properties close to new city rail link stations. Could Council target these properties? “Absolutely.”
Melbourne has done this quite nicely with a graduated tax on properties that are near one of their inner city rail loops, Sherwin said.
“Property values went up, the marketability and the rents in those properties went up, so the council gets a part of that to help fund the infrastructure.”