the case for retaining the metropolitan region improvement tax · pdf filewestern australian...

The case forretaining the

metropolitan regionimprovement tax

April 2007

Western Australian Planning Commission2

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This document has been published by the Western Australian Planning Commission. Anyrepresentation, statement, opinion or advice expressed or implied in this publication ismade in good faith and on the basis that the government, its employees and agents arenot liable for any damage or loss whatsoever which may occur as a result of action takenor not taken, as the case may be, in respect of any representation, statement, opinion oradvice referred to herein. Professional advice should be obtained before applying theinformation contained in this document to particular circumstances.

© State of Western Australia

Published by theWestern Australian Planning CommissionAlbert Facey House469 Wellington StreetPerth Western Australia 6000

Published April 2007 Reprinted September 2007

ISBN 0 7309 9620 4

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Western Australian Planning Commission 3

The case for retaining the metropolitanregion improvement taxThe State Tax Review considered arguments both for and against the continuation of the metropolitanregion improvement tax.

In fact, the empirical evidence, drawn from our real world experience with the tax since 1960,overwhelmingly supports the continuation of the tax. There has been ample time to see if thedrawbacks of such a tax have emerged. We have had time to verify the supposed advantages of thetax. We can quantify the actual costs of ‘regional improvement’ and compare these costs withopportunity costs and the costs of funding regional improvement in other ways.

The choice, essentially, is between a dedicated revenue source for long term planning on the one hand,and annual allocations based on current priorities on the other.

This document argues that the benefits of the former have been shown convincingly again and again,with few if any indications of the possible drawbacks.

and used for the purchase and reservationof land for future requirements, will in factsave the State, and indirectly the public,very much greater expenditure at a laterstage.

Gordon Stephenson and AlastairHepburn, Plan for the metropolitan

region, Perth and Fremantle,1955, page 250.

The contemporary argumentbased on experience

The WAPC outlined the facts about themetropolitan region improvement tax and themetropolitan region improvement fund in itssubmission to the State tax review.

The improvement fund has been used to buyback Swan River foreshores, to protect theface of the Darling scarp, to implement theBush Forever program, to progressivelyacquire land for long term transportcorridors and to secure essential sites forinfrastructure. Recent examples include thepurchase of the land needed for the GrahamFarmer freeway, the assembling of the site at140 William Street to enable the constructionof the new underground station and astrategic central city development above it,and the acquisition of those sections of therail route to Mandurah that were not alreadyreserved.

The original case forthe metropolitan region improvement tax

The McLarty Coalition governmentcommissioned the Stephenson Hepburn report,which advocated a loading on land tax. TheHawke Labour government adopted the reportand the tax. The Brand Coalition governmentimplemented the metropolitan regionimprovement tax. Subsequent governments havemaintained the tax, which has continued toreceive bipartisan support.

The original case for the tax, in summary form,was as follows.

It is very necessary that the regionalplanning authority should have power toacquire or resume land required for thepurposes of the plan…There are variousways in which additional moneys can beraised. They must, however, clearly berelated directly to the land in the planningarea, and as such might be either a rate ora tax on the land based on an assessmentof its value…[T]he payment of a tax in theform of additional land tax and assessed onthe same basis [would apply] principally tourban property owners who, in fact, willobtain the main benefit from developmentproposals under the plan…

Additional tax proposals are always receivedwith disfavour, but it should be rememberedthat any moneys obtained by this method,


The improvement fund has enabled theWAPC to create the outstanding system ofregional open space which is emblematic ofPerth. Those purchases have been basedon expert assessments followed byamendments to the metropolitan regionscheme which have been presented to bothHouses of Parliament – and in nearly allcases the land has only been purchasedwhen the owners have approached thecommission wishing to sell. The value ofland purchased for transport corridors,infrastructure and open space is about $1.2 billion in 2005 dollars.

The return on that investment has beenexceptional: firstly through the efficientimplementation of strategic land use andtransport plans, and secondly because thelong term stability of the metropolitan regionimprovement fund has enabled thecommission to ‘buy well’, acquiring land forurban needs when it is still relatively remoterural land, and when it is on the market…

Compensation paid to private land ownersby the WAPC is based on the fair marketvalue of properties. The value of the land forits likely highest and best permissible use,unaffected by the reservation, is determinedby licensed valuers. Failure to compensateland owners in a timely manner affects thelives of those individuals and their families,and the WAPC makes every effort to providefair and equitable compensation as quicklyas it can. The cost of compensating privateland owners for reservations over their landbecomes a contingent liability of thescheme. The MRS has an estimatedcontingent liability of between $800 millionand $1 billion…

The WAPC believes that additional resourceswill be required in the Perth region toimplement the revitalisation andsustainability policies of governments, andthat the mechanism should continue to bethe very successful metropolitan regionimprovement fund.

The WAPC believes that a comparablefunding mechanism is required for thoseregions experiencing rapid populationgrowth, shortfalls in infrastructure andpressure on urban and natural assets.Equally, a funding mechanism is requiredfor those parts of the state where resourcebased development is expanding rapidly.Planning in these areas reduces delays anduncertainties, coordinates infrastructureprovision, accelerates decision making andachieves efficiencies in both public andprivate investment.

State Tax Review: Submission by theWestern Australian Planning Commission

on revenue for urban and regionalimprovement, 30 September 2005


The evidence from actual case studies

This document presents five case studies drawnfrom the long experience of the WAPC and itspredecessors. The specific lessons which comefrom these case studies are summarised in thedescription of each.

The standard position, which properly applies tomost government decisions and to resourceallocation through the budget process, is thatpolicy decisions should ultimately be made byelected representatives, and that decisionsshould be made just in time, when priorities andoptions are best known. This enables thedecision makers to be more responsive, and itmaximises their flexibility. This is the way tomaximise the efficiency and effectiveness ofresource allocation.

While this may be generally true, for certain kindsof decision this approach is counter productive.

Hard decisions, which involve an assessment ofthe impact on individuals and places, may bebetter made on technical grounds with as muchevident impartiality as possible – hence suchbodies as the EPA and the WAPC. Leavingdecisions until the last minute may precludecommunity consultation, may severely limit theoptions and may raise the costs. In some casesresponsiveness and flexibility come at a highprice, literally (by paying top dollar and endingup with less output than could have beenachieved through planning) and indirectly, in thatthe decisions of others, for instance privatesector investors, may be greatly impeded byuncertainty. In any event, when a choice is finallymade there may still be long lead times beforethe decision begins to take effect.

Urban management is a field in which thestandard approach has many unintendedconsequences. In urban management, actionsare required well ahead of need, long beforeindividual projects are approved and funded.Land needs to be purchased when it comes onthe market, in some cases decades before it willbe put to use. The private sector needs to knowwith certainty the location and timing ofinfrastructure, through the progressiveimplementation of long term plans. Landownersmust be compensated for blight arising from longterm public requirements, and when they suffer

actual injurious affection on the sale of theirproperty or from the curtailment of otherwiselawful development.

Investing money in these ways is less anexpense than an investment with a high rate ofreturn – the planning dividend. Many examplesdemonstrate that early investments of thesetypes avoid later costs which are orders ofmagnitude greater.

This is also true in a very specific sense. Whenthe WAPC purchases land, for instance for atransport corridor, it becomes a state asset: itadds to assets without contributing to borrowingsand as such helps to maintain ratings andrestrain the cost of money for all governmentpurposes.

The primary lesson coming from the case studiesoutlined in this document is that the planning oflong term urban and regional growth requiresparticular funding and coordinationarrangements. It is simply not possible to protectroutes for infrastructure if obligations to theowners cannot be met. It is not possible to givecertainty to landowners and investors unless theresources are available to make plans happen. Itis not possible to assemble essential urban siteswithout the resources to stand in the market andpurchase properties as the owners chose to sell.It is not possible to formulate plans unless theycan be put into effect long before individualprojects can reach the top of the normalbudgeting queue.

Paradoxically, it is only through consulting thepublic on the big picture and the long term, andthen proceeding to shape the city accordingly –along with protecting routes and assemblingsites – that specific projects and policies can beapproved at the last minute, that flexibility can bemaintained and that individual decisions can bemaximally responsive.

The metropolitan region improvement tax hasdemonstrated, again and again, the truth ofthese propositions. It is time to make thismechanism available in the other regions of thestate, preferably through a state improvementtax. A first start would be to extend themetropolitan region scheme mechanism to thePeel region and Greater Bunbury. Such a movemay overcome the problem of the as yetunfunded liability of the Greater Bunbury regionscheme.


Case study one:The southern extensionof the Kwinana Freeway

The Kwinana Freeway has been constructedas far as Safety Bay Road. The next section ofthe route was patiently acquired over a periodof 18 years. Between 1988 and 2004 theWAPC purchased all of the land for theextension of the freeway from Safety Bay Roadto Gordon Road in Mandurah. This section – adistance of approximately 23 km involving242.02 ha of land – is essential for theconstruction of the Perth Bunbury Highway.

Acquisitions included land for the freeway andits intersections, as well as land parcels thatwill be severed by the freeway. The land waspurchased on the market and by negotiationwell before the approach of the urban front.The total outlay was $5.88M, an average of$24 300 per hectare. Land values along theroute have risen exponentially since then.

Just as significant as the savings to thetaxpayer are the logistics. The construction ofthe Perth Bunbury Highway was able to becommitted in the knowledge that all of theroute had been secured, that there would beno forced resumptions and that there would beno consequential battles over compensation.

Similar benefits accrued to the private sector:with the route defined and secured, investmentdecisions could be based on greater certaintyabout the future. Investment decisions weremore competitive, and certainly lessspeculative.

What was the alternative?

If land acquisition for the freeway from SafetyBay Road to Gordon Road had to be acquirednow by MRWA the cost would be close to$120M. If the land had to be compulsorilyresumed the cost would be at least $145M.

This is not hypothetical. MRWA are facing veryhigh compensation claims for the section ofthe Perth to Bunbury Highway within the Peelregion, which has had to be acquired at thelast minute, when the road was funded, without

the benefit of long term strategic purchasesfacilitated by a region scheme and animprovement fund.

Similarly, land use planning and privateinvestment along the route of the PerthBunbury Highway in the Peel region haslacked the certainty that should be providedby region scheme reservations supported by acommitted fund for implementation.

What does this case studydemonstrate?

Early selection of routes for strategicinfrastructure delivers large material benefits tothe government and the economy. Thereservation of infrastructure corridors:

• provides certainty for planning andforward estimates;

• allows certainty for private sectorplanning and investment anddevelopment;

• gives maximum flexibility to theprogramming and scheduling of outlays;

• in general, makes urban developmentmore competitive.

Early and systematic acquisition of the landrequired for infrastructure has many benefitsover last minute purchases and resumptions.

• Acquisition is much fairer when it canwait until owners decide to sell.

• The lifetime cost of the project is muchless.

• Acquisition avoids resumptions involvinghardship, delays, higher costs and badpublicity.

Early selection and systematic acquisitionare just two of the reasons why governmentseverywhere have directed revenue intoongoing dedicated trust funds comparable tothe metropolitan region improvement fund.


Case study two:Priority One (P1) groundwater at Lake Pinjar

In 1994 the ground water at Pinjar wasidentified as critical to Perth’s future suppliesof drinking water. An area of about 2500 hawas designated a priority 1 source protectionarea. At the time the area was about to beused for a spring water extraction and bottlingbusiness using water extracted from theYarragadee formation (under a Water Authoritylicence), together with market gardens, poultryfarms and an intensive piggery.

The problem of protecting the water resourcewas investigated by a Parliamentary SelectCommittee. The committee came to theconclusion that acquisition of the private landwould be the fairest and most cost effectiveway to guarantee the long term security of theresource.

The Select Committee recommends that theState Planning Commission and the WaterAuthority should examine funding optionsfor the purchase of land for groundwaterprotection…

Report of the Select Committee onMetropolitan Development and

Groundwater Supplies 1994, page 166.


Conservation Commission’s magnificentDarling Range regional park, anappropriate setting for a capital city.

• Since that time, a multitude ofmechanisms and approaches –including land swaps, covenants,easements, negotiated free transfers andthe free ceding of land as a condition ofplanning consent, as well asreservations, planning control areas andimprovement plans – have been used tosecure land for essential publicpurposes.

• The WAPC asset management team inDPI (and their predecessors) have beenresponsible for thousands of landtransactions involving the acquisition of 29 100 ha (291 km2) of land for thescheme.

• The WAPC asset management team inDPI have an enviable reputationthroughout government and industry forprofessionalism, experience andconsistency.

• Land acquisitions and disposals, to meetthe government’s policy objectives, havebeen carried out in a skilled and efficientmanner, at the least cost in terms ofprivate inconvenience, controversy andpublic expenditure

The maintenance of professional expertisein, and responsiveness to, the land marketis essential for efficient and effective urbanmanagement by governments, and a directoutcome of a dedicated revenue stream for aland based trust fund.

To knowledgeable interstate observers ofurban and regional development, this is oneof Western Australia’s notable competitiveadvantages.

In fact a funding and acquisition mechanismalready existed: the metropolitan regionscheme supported by the metropolitan regionimprovement fund. When the report wasadopted by government in 1994 the WAPCbegan purchasing private land in the priority 1 area, through negotiation and as each parcelbecame available on the market. By 2006nearly the entire area had been acquired,amounting to nearly 2100 ha. The averagehistoric cost has been $12 024 per hectareand the total outlay has been $25.25M.

More important than the timeliness of theacquisitions was the significance of theprotection afforded water resources. As eachland parcel was purchased, sources ofpollution were immediately removed, boresinto the superficial aquifer were closed andwater entitlements were terminated.


In the absence of a mechanism forprogressive acquisition, significantcompensation would have been payable tobring about land use changes and to reducewater entitlements, while pollution and wateruse continued in any event, no doubtaccompanied by legal and political actions. If acquisition eventually became unavoidable,the government would now find that the goingrate for this type of land is $48 600 perhectare. Buying 2100 ha would cost about$102M if purchased by negotiation and over$120M if compulsorily resumed.


The results are in: by moving immediately,the quantity and quality of groundwater wasmaximised and possibly $100M was availablefor alternative public purposes.

A pool of knowledge and expertise,unmatched in the government, has been builtup over forty years.

• The first act of the Metropolitan RegionPlanning Authority, in 1960, was tocommence purchases of the reservedland that has now grown into the


Case study three:The widening and upgrading of Great Eastern Highway

If and when a decision is made to upgradeGreat Eastern Highway east of Rivervale, it willbe achievable only because the property andinfrastructure preconditions have already beenmet, and the costs (in money, time andnegative publicity) of resumption,compensation and relocation will have beenentirely avoided.

Since 1963 the metropolitan region schemehas included reservations for the widening ofGreat Eastern Highway. This has ensured thatnew development is outside the future roadreserve, and has enabled the WAPC toprogressively purchase, on the market, theland needed for road widening and newinfrastructure corridors, at a total outlay of$4.1M. Where practicable, and in anticipationof the road widening, Main Roads, WesternPower, the Water Corporation, Alinta andTelstra have been locating their services in thewidened road reserve, clear of the futurecarriageway.


• Land required for road widening must bepurchased as it comes onto the market,over decades, if there is to be anychance of assembling long stretches ofroad reservations.

• Land must be progressively purchasedbefore it becomes unaffordable due torezonings and adjacent public andprivate investment.

Long term urban coordination is aninvestment with very high rates of return.

• Urban coordination requires the needsfor redevelopment and reconstruction tobe determined in advance and thereforethe liabilities for land acquisition to bemet from a dedicated fund.

• Only in this way can the private sectorplan and invest efficiently.

• Only in this way can the governmentavoid the high costs of buying orcompensating the capital investmentwhich must be written off to allowreconstruction to take place.

• The relocation and alignment of servicesshould occur progressively, whenservices are being built, replaced,upgraded or renewed.

• Only in this way can the governmentavoid paying for valuable infrastructurewhich has to be written off.

As a result of patient and persistentapplication of the metropolitan regionimprovement fund, land owned by the WAPCwill enable the Great Eastern Highway to berebuilt as a dual carriageway arterial fromOrrong Road to Belgravia Street.


Recent rezonings in the City of Belmont localplanning scheme have greatly increased thedensity of permissible development, andhence the value of the land. It would now costat least $13.6M to purchase the road wideningreservations by negotiation. It would besignificantly more costly and protracted tocompulsorily resume the land required for roadwidening. In the absence of planning controlsto prevent incremental development on theland required for road widening there would beeven an higher cost for compensatingbusinesses. In addition, there would also bevery significant (possibly prohibitive) costs inthe forced relocation of trunk services recentlylaid and erected within the old road reserve.


An initial outlay of $4.1M from themetropolitan region improvement fund hasmade the widening of Great Eastern Highwayfeasible, avoiding legal and media battles andsaving the many tens of millions of dollars incompensation that would otherwise berequired just to meet the preconditions for theproject to proceed.

When the time arrives for urbanreconstruction it is already far too late,unless persistent long term action has beentaken.

• The only way to prevent thedevelopment of land in a road wideningreservation, and hence to avoid themassively increased costs of paying forimprovements and compensating forbusiness losses, is to purchase the landor compensate the owner whenever thedevelopment is proposed, years(decades) ahead of the road wideningtaking place.


Case study four:Continuous publicaccess to the Mount Lawley riverforeshore

In 2006 the local community saw the riverforeshore at Mount Lawley transformed. Forthe first time since the original land grants,people had access to the river right along itsbanks. Comprehensive rehabilitation of theforeshore commenced. The excellent Perthbicycle network was extended about onekilometre from Banks Reserve to Bardon Park,completing a very important gap in a networkwhich will soon link Fremantle and Guildfordon both sides of the river.

The foreshore had been reserved in themetropolitan region scheme since 1963. TheWAPC had been progressively purchasing thereserved land since then, mainly at the requestof the landowners. Where owners had soughtcompensation when proposals to develop onthe foreshore had been refused, the WAPCelected to purchase the land. Wheresubdivision was proposed, ceding theforeshore free of cost was made a condition ofapproval. Finally, in 2005, the last two smallstrips of land blocking the full length of theforeshore were compulsorily resumed.

This brilliant outcome was achieved throughpatient, persistent application of statutoryplanning mechanisms, made possible solelyby the metropolitan region scheme, the skillsof the WAPC asset management team in DPIand the dependability of the metropolitanregion improvement fund.

Its significance goes well beyond MountLawley. It is a small but essential step towardsachieving the kinds of public amenity andquality of life which will ultimately determinePerth’s competitiveness and its place in theworld.


There was no alternative. No other mechanismexists for this kind of urban improvement.

Reversing the alienation of the banks of theSwan and Canning rivers may be relativelyinexpensive, it may have profoundly beneficialeffects for the city, and it may be popular, butwithout a region scheme (supported by animprovement fund and a skilled property teamin DPI) it simply cannot happen.


Bipartisan continuity is more importantthan a succession of projects in achievingthe social and cultural capital that reallymatters in the long run.

• A forty-year project, such as thoseinitiated by the metropolitan regionscheme, cannot be sensibly funded onan annual basis: experience in otherstates proves the point many times over.

• Annual or even ten-year fundingstruggles to adequately weight relativelylow-cost projects which have profoundlyimportant outcomes for the long termprospects of the state but which cannotproduce tangible results in the shortterm, are difficult to sell and are not highin immediate priorities.

• Many obviously desirable projects andprograms must rely on continuing,dedicated funding processes if theoutcomes are either intangible or longterm.

• Such funding processes necessarilycontinue over many terms of governmentand therefore must – like, for instance,funding through LotteryWest – enjoybipartisan support.


Case study five:Protecting vital freightroutes to theFremantle outer harbour

Among the many preconditions for theproposed outer harbour at Naval Base areexcellent connections to the consumers ofimports and to the producers of exportcommodities, across the metropolitan regionand the state. The WAPC is involved indefining and securing many of these routes,and in protecting existing freight routes fromthe constraints of nearby urban development.

The immediate routes leading to the northernand southern entrances to the outer harbourare not far from the urban development front inthe south west corridor. The northern route hasbeen protected by the creation of a planningcontrol area for both road and rail. This definesa movement corridor 90 m wide, sufficient forboth a freeway and a railway. It ensures thatany development with the potential to impactnegatively on the efficiency of the port isassessed and possibly refused by the WAPC.

The planning control area has enabled theWAPC to purchase strategic land parcels onthe market, and to compensate land ownerswhose proposals have been constrained bythe measures to protect the possible freightroutes. Over the past five years the WAPC haspurchased 16.82 ha by paying the fullunaffected market price, at a cost of only$2.65M.

What ever the decisions concerning the outerharbour, the same routes will be required forthe strategic industrial area at Hope Valley-Wattleup, a long term project beingundertaken by a partnership between theWAPC and Landcorp.

These measures to protect access to industryand infrastructure are made possible by themetropolitan region scheme and themetropolitan region improvement fund, whichare uniquely effective for precisely thesepurposes.


In the absence of planning control areas andsimilar protective mechanisms, reservationsand acquisitions begin when an infrastructureproject is committed and funded. By then itmay be necessary to make compulsoryacquisitions, and to compensate owners forincremental and cumulative developmentsalong the route.

Specifically, if the 16 ha acquired by the WAPCneeded to be purchased today, with higherexpectations of the outer harbour and otherprojects going ahead, it would cost $7.24M onthe market. If, as would be almost inevitable,resumptions and compensation werenecessary, the price would be far higher.


The most important plans are often thoseprior to the planning proposal.

• Maintaining options, for instance throughprotecting access to sites, can often beachieved at a modest cost yet can havea very high rate of return.

• Conversely, failure to protect routes canimpose high and in some caseinsuperable impediments on importantprojects.

• This kind of planning, such as securingroutes for strategic infrastructure thathas not yet been committed or designed(let alone funded), usually proceeds onlyif it has continuing dedicated fundingthat has bipartisan support.

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