Major transport projects costing billions are being proposed for Sydney and Melbourne to shrink these sprawling cities.

NSW Premier Barry O’Farrell’s plans to ‘fix’ Parramatta Road by ripping it up and installing the M3 in a cut-and-cover tunnel. The poor state of Parramatta Road has ruined the sleep of every NSW Premier since Charles Cowper (1856).

In Melbourne, Doncaster residents dream of a rail line down the centre of the Eastern Freeway optimistically costed at $840 million. They claim higher property values would boost Stamp Duty, State Land Tax and local government rates and finance the project. The Victorian government is so uninterested in the rail line it failed to even yawn. Its pet project is to extend the Eastern Freeway with a $6 billion East-West toll tunnel under Carlton and Parkville to the Tullamarine toll road.

Citizens want the cost and time savings while governments cry poor. The value capture schemes proposed to fund them are really second-rate. There is a better way.

Big digs cost big money. O’Farrell talks tolls (cue a collective groan) and a cute wrinkle: gifting developers the right to line Parramatta Road with high rise buildings in return for a $20,000 ‘contribution’ per apartment to the road’s cost.

The common financing thread is the desire to ensure user pays – a worthy principle. But the methods on offer to ensure this are lies and a travesty.

The rezoning of land along Parramatta Road will probably deliver a $100,000 benefit per apartment to the developers. O’Farrell is offering a narrow group of lucky owners an undeserved windfall gain. Prices there are already rising strongly.

The Doncaster funding proposal is no better. Stamp Duty distorts behavior and imposes heavy costs on those who buy and sell. The existing State Land Taxes exempt principal residences – the dominant land use in Doncaster. And council rates are meant to provide services – amenities, local roads and rubbish collection.

All the funding ideas acknowledge a powerful truth: civic improvements lift land prices.

Citizens fret over paying taxes and see them as a deadweight loss – usually they are. The beautiful benefit of Land Value Tax is the high level of responsibility it imposes on government. If civic improvements do not lift the market price of land, no extra tax is payable.

In 1996, London underground built the 3.5 billion pound Jubilee rail line through their Docklands, lifting land prices along the line by 13 billion pounds. Only a fraction need be returned to government for such projects to be entirely self-funding.

So, Premiers, these projects could be internally-financed – provided your cost-benefit analysis holds water.