Long awaited proposals for NSW Infrastructure Contributions reform released

17 Apr 2020

There is an opportunity now to help shape the NSW Government’s reform program for State and local infrastructure contributions, but questions remain about what (if any) interim steps will be taken to address contribution requirements in the short term, to help stimulate development and facilitate infrastructure delivery. 

The Department of Planning, Industry and Environment has this week released public consultation documents for proposed reforms to the NSW infrastructure contributions framework. The reforms address the suite of funding mechanisms under the Environmental Planning and Assessment Act 1979 which local councils and State government agencies use to obtain infrastructure contributions from developers – voluntary planning agreements (VPAs), section 7.11 and 7.12 contributions and special infrastructure contributions. 

Both government and industry have agitated for reform in this area for some years now, advocating that changes are needed to address both the inflexibility of traditional funding mechanisms and the lack of accountability in more contemporary models such as VPAs.  The consultation documents are open for comment until Friday 12 June 2020. We encourage local councils and developers alike to consider the proposed changes and provide feedback to the Department as these changes are likely to ‘set the course’ for infrastructure contributions for the foreseeable future. 

Draft Planning Agreements Policy Framework

In 2017, the NSW Government released a draft Voluntary Planning Agreement Practice Note which strove to establish a fair and transparent VPA framework reflective of public interest principles. Neither the Practice Note, nor the accompanying planning circular and Ministerial Direction, was ever finalised.  

The Department has now released a new draft Ministerial Direction and an updated draft Planning Agreement Practice Note (Practice Note). The Ministerial Direction, if made pursuant to section 9.1 of the Act, will require local councils have regard to the Practice Note when negotiating or preparing a planning agreement.  The Practice Note sets out:

  • the principles and strategic considerations for VPAs;
  • procedures for negotiation and preparation; and
  • a template VPA and explanatory note.

By outlining the role of VPAs and the process for their preparation, the Practice Note introduces greater transparency and accountability for local councils and State government agencies, and helps developers know what to expect. One of the fundamental principles established in the Practice Note is that value capture or financial gain cannot be the primary purpose of a VPA. 

IPART Process for Councils Making Section 7.11 Contributions Plans

The proposed reforms for section 7.11 contributions focus on the Independent Pricing and Regulatory Tribunal (IPART) review process for local contributions plans. Where a council seeks to impose contributions via a contributions plan at a rate greater than a prescribed capped amount per residential lot/dwelling, it must obtain an IPART review of the contributions plan and then Ministerial ”advice” on the IPART review before being able to impose the higher rates. The opportunity to impose these “uncapped” rates starts on 1 July, for councils whose contributions plans have been through this process.

The IPART and Ministerial process is lengthy, typically 12-18 months, and regulation around this process is complex and convoluted.

To streamline this process, the Department proposes to:

  • Increase the value threshold that triggers the IPART review process – a number of options are canvassed;
  • Introduce an annual indexation mechanism for these thresholds going forward based on CPI;
  • Update the IPART current terms of reference to provide clarity and efficiency and facilitate a targeted review;
  • remove existing exemptions from the IPART review process; and 
  • remove the requirement for councils to re-exhibit an IPART reviewed plan following receipt of the Minister’s advice.

The Department is also calling for feedback on the Ministerial Direction which imposes the caps and directs the IPART review process.

Section 7.12 Contributions 

Section 7.12 contributions available under the Act allow local councils to charge fixed development consent levies as a percentage of the proposed cost of a new development, as an alternative to section 7.11 contributions. The default maximum charge is 1% however specific regions are subject to higher maximum percentages. 

To ensure certainty, consistency and transparency, the Department is proposing to introduce criteria which will be applied to requests from local councils to raise these maximum percentage levies. The following three principles which underlie the proposed criteria are that the areas in which the higher levies are sought must: 

  • be identified in a strategic plan as a strategic centre, local centre or economic corridor; 
  • hold potential for significant employment growth; and 
  • have planning controls supporting the planned population increase and employment capacity. 

The Department's proposed criteria, if met, will allow councils to impose a maximum levy of up to 2%. Councils may request to increase levies up to 3% but will have to provide sufficient evidence that the area involves "district-level infrastructure". 

Special Infrastructure Contributions (SICs)

Those with developments in special contributions areas pay State Government SICs to assist with the funding of key state and regional NSW infrastructure. The Department has now released draft SIC Guidelines which provide:  

  • The purpose of a SIC is to provide government funding while simultaneously supporting government relationships  with private sector entities;
  • When developing a SIC, the Department is to consider principles including infrastructure need, government policy, investment benefits and advice from overseeing bodies; 
  • SIC implementation requires a SIC Determination, a Ministerial Direction, and a Ministerial Order; and
  • SICs must be sufficiently specified in regards to location, use and involved costs. 

Amendments to the Environmental Planning and Assessment Regulation 2000 (Planning Regulation)

A number of changes are proposed to the Planning Regulation to increase transparency and improve public confidence in the infrastructure contributions system. A draft amending regulation has been released for comment. Many of the changes introduce additional reporting requirements for councils and planning authorities when it comes to development contributions collected and planning agreements made. 

Productivity Commission review

The NSW Planning Minister and Treasurer have also announced that the Productivity Commissioner, Peter Achterstraat will review the infrastructure contributions system and provide recommendations for a new system which will report at the end of the year.

It is not clear yet how this will affect the content or timing of the State Government’s other initiatives as outlined above. 

Contributions and urgent stimulus

The announcements this week are a significant step forward in the reform of development contributions, which plays a major role in assessing development feasibility and ensuring the delivery of infrastructure to support new developments.

Clearly, it’s essential to get these reforms right, and the current consultation phase is very welcome.

However, there are also calls for immediate measures to help stimulate development for an economy in crisis, and at the same time facilitate infrastructure delivery to service new development and provide additional economic activity. We understand these issues are still under consideration, so watch this space.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.