According to The Australian Financial Review today, rail and other city-building projects could soon be funded by pledging to bond holders a slice of the future gains in land taxes generated by rising property prices under options being explored by Australian Prime Minister Malcolm Turnbull.
Sources confirmed Mr Turnbull has made inquiries into the idea of securitising increases in land taxes or rates revenues that would flow from rising property prices located near new infrastructure.
While the concept is not yet at the formal policy proposal stage, Mr Turnbull signalled an eagerness to consider a range of innovative funding mechanisms.
Speaking on the Gold Coast after pledging $95 million for stage two of the city's light rail project – a project his predecessor Tony Abbott refused to fund – Mr Turnbull cautioned that direct grants were not the "only way the federal government can or should support infrastructure.
"In the future, we want to look at more innovative approaches; we want to look at arrangements where we can partner the state governments or city governments as shareholders, as investors.
"We also have to look creatively at how we capture the value that arises from the increase in property values and the improvement in the utility of adjacent land from the building of infrastructure like this," he said standing next to the Gold Coast light rail.
The potentially revolutionary approach could involve governments estimated increased property values, taking the expected windfall in land taxes and rates and turning that revenue stream into securities that could be sold to investors and hence used to fund infrastructure.
It would hinge on both state and council involvement as the federal government doesn't control land taxes or rates.
However, the use of what is sometimes termed "tax increment financing" is becoming more common overseas, particularly in the United Kingdom and the United States, and effectively brings forward the economic windfall that typically accompanies new rail and other improvements.
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