Value Capture Taxes: An International Best Practice to Fund Transit Infrastructure

Finance and Transport Ministers float equitable fund-raising scheme for projects like the Airport Lines


We all know Auckland has a large transport infrastructure deficit and we equally know those south of the Bombay Hills get hostile if their taxes go up to pay to get Auckland moving (even though they benefit owing to Port of Auckland and Auckland Airport). However, while general taxation should pay for transport investment (deprecation over 100 years) I can fully understand other revenue raising methods being applied in Auckland for some of our strategic Rapid Transit Lines.


The second truck can be seen on its side, and people can be seen out of their cars wheeling suitcases towards Auckland Airport. Photo: RNZ / Jeremy Brick


Enter Value Capture Tax.

What is Value Capture Tax?

From Politik:

He was talking about a tax called “Value Capture” which has been used on projects like London’s Crossrail to impose a special rate on land adjacent to the development which inevitably rises in value as a consequence of the new rail link.

In effect, it’s a tax on the value windfall that property owners adjacent to the development get.

It has been promoted in New Zealand by bodies like Infrastructure New Zealand and was under consideration by the last Government.


Source: Ouch! Adams and Collins shoot themselves in the feet

The column also includes National in complete disarray over the tax as well.


From Stuff:

Finance Minister Grant Robertson has signalled that property owners benefiting from the building of the Auckland rail links could be subject to a special “value capture” tax.
Speaking at the Auckland Chamber of Commerce/Massey University annual finance lunch at the Pullman Hotel in Auckland, Robertson said the Government was investigating “innovative” ways to bridge the funding gap to pay for the rail and roading infrastructure the country needs, especially in Auckland.
“Between the balance sheets of the Auckland Council and the Government, we still don’t have enough,” Robertson said.
“Minister Phil Twyford and I are actively looking at opportunities for how to do that.”

quote context:


This is a process under which a special tax is levied on property owners deemed to have benefited from the building of infrastructure.
“If we are going to make big investments in things like [Auckland’s City] Rail Link, and a series of different rail links, people will benefit from that. How do we capture the value of that, and use that to fund the development?” Robertson said.
In March last year, the Productivity Commission gave an example of how that might work.
If the land value of a property benefiting from a new rail link increased in value from $100,000 to $250,000 over five years – a 150 per cent increase compared with a rise of 120 per cent in land values in the wider area – a tax could be levied on the $30,000 gain attributable to the infrastructure improvements.
The tax could be levied alongside of rates, the commission suggested.

quote context:


Source in full:


North West Light Rail or even the Southern Airport Line
Source: The Spinoff


Essentially a Value Capture Tax captures the difference in value of the property (residential and commercial) from pre-infrastructure built to post-infrastructure as form of revenue to pay for that said piece of infrastructure. This is based on the assumption of the capital windfall gain from when the State invests in a public good is taxed (so a tax on wealth rather than income) given those who are closest to the new piece of infrastructure gain most from it (either directly from using it or patronage increases to your shop front, or indirectly through congestion mitigation on the wider transport network).

Value Capture Tax makes the most sense for the following projects:

  • Northern Airport Line (City Centre to the Airport via Dominion Road)
  • North Shore Line (the line would join with the Northern Airport Line at Wynyard Quarter forming the Central Line per the Congestion Free Network 2.0)
  • Eastern Busway (Panmure to Botany and Howick via Pakurana)
  • North Western Light Rail from the City Centre to Westgate and later Kumeu
  • Southern Airport Line Bus Rapid Transit from Howick to Manukau

You might notice that I have not included the Third and Fourth Mains on the Southern Line nor the Southern Airport Line from Manukau to the Airport via Puhinui Station (as Light Rail). This is because both projects are deemed inter-regional and should be funded by general taxation given the wider inter-regional benefits of both projects. The Third and Fourth Mains from Otahuhu to Wiri and Papakura will untangle freight trains and passenger trains from each other allowing more services to travel through efficiently. The Southern Airport Line links up with inter city services either at Manukau (bus) or Puhinui (train via Regional Rapid Rail) allowing express services to the airport from the City Centre or inter-city rail from Hamilton and Tauranga to the airport.


Rapid Regional Rail
Source: Auckland Transport

Again given the inter-regional nature of the Southern Airport Line, and the extra Mains on the Southern Line I am hesitant to subject both projects to Value Capture Tax.


Third Main in Action at Otahuhu-Middlemore
Source: Kiwi Rail


How to apply Value Capture Tax?

From The Conservation:


Value capture: a good idea to fund infrastructure but not easy in practice

Marion Terrill, Grattan Institute and Owain Emslie, Grattan Institute

Is “value capture” a wonderful untapped opportunity to fulfil all our infrastructure dreams? Or is it just a new way to sting the taxpayer? Our new report casts a cold, hard gaze over value capture, and finds that it’s a good tax in theory, but will prove very hard to put into practice.

Value capture is the name given to a policy whereby governments capture some of the increased value of land that results from building a new piece of infrastructure. Typically, the money the government “captures” is used to help fund the project.

At first glance, value capture seems marvellously fair, because it applies only to those who benefit from the particular project. So the people of western Sydney do not help fund a new railway station on the North Shore. But look a little closer: it also means that affluent inner-city residents don’t help fund a better railway station in Melbourne’s outer northern suburbs.

Federal ministers from the prime minister down are enthusiastic about value capture and are pushing the states to embrace it. Only last week, Urban Infrastructure Minister Paul Fletcher reiterated that the Commonwealth does not want to be “just an ATM” for the states. But if the federal ministers face up to some home truths, they may find value capture less to their liking.

Value capture is a tax

Home Truth No. 1 is that a value-capture scheme is a tax. That’s how it raises revenue. Politicians tend to shun the “T word”. They prefer to present value capture as an innovative financing mechanism. Sorry, it’s a tax.

Some advocates point to Hong Kong, where a private company builds and operates the rail lines, in return for cheap access to development rights around the new stations – a non-cash subsidy. Yes, integrating new infrastructure with rezoning and other planning changes is a great idea. But a similar model in Australia would have to be much smaller in scale.

That’s because in Hong Kong the government owns all the land. In addition, the city is dramatically denser than Australian cities: more than 7 million people live in a built-up area of around 285 square kilometres, compared with Sydney’s population of about 5 million in around 2,000 square kilometres. In a very dense city, good access to mass transit is highly valued.

Others in the value-capture camp point to tax increment financing (TIF) schemes. These have been used in the US with mixed success.

TIF schemes don’t involve a new tax, or indeed a funding source of any kind. Instead, they are financing schemes that earmark an expected increase in future revenue from existing taxes, such as land taxes, which can be attributed to a new piece of infrastructure. This increase is then used to repay special-purpose bonds.

But TIF schemes are of little value in the Australian context, since Australian governments have strong credit ratings and can borrow at extremely low rates of interest – more cheaply than private sector financiers can. Not only this, but TIF schemes generally do not offload project risk. They may instead come with a hidden government guarantee.

Family home would be captured

Which brings us to Home Truth No. 2: to raise a reasonable amount, a value-capture tax would need to include the family home. Owner-occupied housing accounts for around 65% of total land values in Australia, and increases in its value are taxed very lightly (see the chart below).

Author provided

To minimise the distortions value capture could have on the economy, it should be charged on unimproved land value, as a flat proportion of the land-value uplift attributable to the new infrastructure, with no exemptions.

A tricky question of who’s in and who’s out

Home Truth No. 3 is that many taxpayers are likely to feel aggrieved. Property prices go up – and down – for many reasons.

Drawing a boundary around a new piece of infrastructure to distinguish between those who must pay the new tax and those too far away to benefit is bound to involve rough justice.

Also, it won’t be easy for governments to convince people that their new tax bill still leaves them better off. Homeowners get the benefit of the new project on paper, but have to pay the tax bill in cash. Is this sounding like a political nightmare yet?

A way to reduce the political heat

There is, however, a way to implement value capture that could take a bit of the political heat out of individual decisions. Governments could pass general legislation that applies value capture to every transport infrastructure project with certain characteristics:

  • an identifiable beneficiary catchment
  • a project that’s expected to make an area significantly more accessible
  • the amount of revenue to be raised far outweighs the cost of administering the scheme.

So, for example, value capture might apply to all urban passenger rail projects costing over A$50 million. The tax might then be levied on all properties within 800 metres (i.e. walking distance) of a new station.

Once such legislation is in place, each value-capture tax may be slightly less politically fraught. This approach will minimise the opportunities for rent-seeking or corruption that arise from designing bespoke schemes for every individual project.

Broad-based land tax is better still

A better answer still could be a broad-based land tax. Such a tax is highly efficient, because land is an immobile tax base (see the chart below).

Author provided

While it would not zero in on the beneficiaries of new infrastructure, a land tax would capture the effects of all infrastructure, old and new, as these translated into land values, making it scrupulously fair. A broad-based land tax would also be simpler to administer than a value-capture tax. That’s because there would be no requirement to police the geographic boundary of the catchment area.

So a broad-based land tax has some distinct advantages over a value-capture tax.

Some will say our conclusions are pessimistic, that a little more creativity could devise a way to design value capture so it painlessly funds public infrastructure. To which we would say: there’s no magic pudding when it comes to public money – the only sources of funding for public infrastructure are user charges or a tax. Value capture may involve taxing beneficiaries more than the general taxpayer, but it’s not a bucket of free money.

Yes, if value capture is done the right way, as a tax that embraces the principles of equity, efficiency and simplicity, it could make a positive contribution to infrastructure funding in Australia. But the truth is, there is nothing easy about capturing value.

The ConversationMarion Terrill and Owain Emslie are the authors of the new Grattan Institute report, What price value capture?, available here.

Marion Terrill, Transport Program Director, Grattan Institute and Owain Emslie, Associate, Grattan Institute

This article was originally published on The Conversation. Read the original article.




For Auckland the boundary for Value Capture Tax would be 800 metres from the corridor itself and/or around the transit stations on said corridor. 800 metres is the international standard for walk up catchments to a transit statement or a commercial centre. The 800 metre walk up catchment is also mentioned in the Auckland Plan and Unitary Plan so at least it is already in our main planning documents ready to go.


Value Capture Taxes are not exactly pretty but they are an extra tool in the box to accelerate much-needed transit projects in Auckland (and equally elsewhere like Christchurch, Wellington, Hamilton and Tauranga). Providing we are consistent with the boundary (800 metres from the stations and corridor) to apply the tax then why not apply it. Both National (Simon Bridges) and Labour support the VCT so to borrow that hashtag: #LETSDOTHIS


Airport and bus line up




2 thoughts on “Value Capture Taxes: An International Best Practice to Fund Transit Infrastructure

  1. “For Auckland the boundary for Value Capture Tax would be 800 metres from the corridor itself and/or around the transit stations on said corridor.”
    I’d argue that living in such close proximity would actually detract from property value, given an increase in heavy freight at all hours of the day and night. The increase in traffic around transit stations would also detract from the value, witness the morning parking free for all at Papakura and other stations similarly affected.
    Being a ‘part time’ gold card rider and catching glimpses into everyone’s backyard as I pass by raises some privacy issues to me as well. I can’t see that adding to value either.
    Needs a lot more discussion at this stage methinks.

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