Debate over the new Melbourne Metro Tunnel and the funding needed is expected to heat up now that PM Abbott has said the $1.5 for the E-W Link is ‘locked in a box’.

An interesting article in The Age highlighted the need for value capture:

One idea floated this week, including by one of the world’s biggest engineering and project management firms, is placing a special levy lasting decades on commercial properties within walking distance of the planned rail line.

Melbourne’s City Loop under construction: a levy on the CBD’s commercial properties helped fund the project.

Such a levy helped pay for the City Loop, the Sydney Harbour Bridge and is used regularly on international rail projects.

The $28 billion Cross Rail project being built under London at the moment will have 28 per cent of its construction cost paid for by an annual increase in commercial property rates around stations.

AECOM Infrastructure Advisory director Joe Langley, who has worked on Melbourne projects and on a recent federally funded study of high-speed rail between Brisbane and Melbourne, said this sort of “value capture” was the best way to make those who directly benefited from a transport project help pay for it.

London’s Cross Rail project under construction: a levy on property owners will pay for a quarter of its cost.

In London’s Cross Rail project, the extra charge on rates bills is set at 2 per cent on non-residential properties worth more than £55,000 ($A105,000), he said. “It puts that over a 30-year period into a kitty, into an infrastructure fund, and that fund then pays for the project over time. It identifies where there is a beneficiary and it monetises it.”

Mr Langley said that property owners who had buildings that lay along the proposed Melbourne Metro route would be “rubbing their hands with glee” because of the lift in property prices for their area.

Mr Langley, an urban planner from America who has worked here for many years, said value capture was an accepted part of building new public transport infrastructure in the United States. “If you are a property owner right next to one of these stations,” Mr Langley said, “you are going to have enormous benefit from the property values [growing].”

Lord Mayor Robert Doyle hosed down such suggestions.

“What’s next? Do we have a tax on households where we are going to build a new primary school because they’re going to be the beneficiary of that infrastructure?”

He said new infrastructure should not see one section of the community singled out to pay for it. Asking residents or businesses to stump up for a project because they would benefit was not right, he said. “We are all going to be the beneficiaries.”

Almost. Doyle is talking primarily about benefits to amenity. Some will benefit financially as well. Should the rest of the community subsidise those lucky enough to live nearby? Neighbouring property owners could still claim some 80% of the windfalls. Paying just 20% of these unearned incomes back to the state for the provision of both amenity and unearned income is not unreasonable.

Treasury has just released a number of reports showing how a value capture type mechanism is the most helpful tax an economy can adopt. But the political momentum is stuck in a quagmire where the ‘only option’ for infrastructure finance is to engage in asset recycling – a dog whistle for privatisation.

By choosing the alternative path of Value Capture, pressures would be alleviated on governments to increase regressive taxes that hurt the wider economy with inefficiencies. Unless more realise this sort of behaviour is driving the wealth gap, the fair go will be all but forgotten.

Read the long list of international institutions advocating for Value Capture.