NSW Contributions Review Series

Part 1: a review and some reforms 6 min read

After years of little progress in relation to contributions reform, on 15 April 2020 the NSW Government announced two significant developments – a review by the Productivity Commissioner and some more immediate 'system improvements' to be instituted by the Department of Planning, Industry and Environment (DPIE). While some aspects of these announcements will be welcomed by the development industry, concerns have already been raised regarding the timing and interaction between these initiatives, and how they fit into the Government's broader plans to boost the construction pipeline to support NSW's economic recovery from COVID-19.

With submissions in relation to the proposed 'system improvements' due on 12 June 2020, we recommend all interested parties within the development industry begin their review, assessment and feedback processes now to ensure their opinions are heard and considered.

Key takeaways

• The comprehensive review of the contributions system through the lens of productivity is a very welcome development, which will hopefully lead to much-needed reform.
• Some aspects of the more immediate proposed reforms are also a step in the right direction and will assist to promote transparency and certainty for developers, although other aspects appear to lay the foundation for increases to contributions and will reduce scrutiny of proposed changes to contributions plans.
• It is unclear how the Productivity Commissioner's review is intended to interact with the other proposed reforms, and it is concerning that the Productivity Commissioner's recommendations are not due until the end of the year, at which point these reforms are likely to have already been implemented.
• The timing of the review also seems at odds with the timing for implementation of the recently announced Planning System Acceleration Program and the Government's broader agenda to get shovel-ready projects off the ground to assist the economic recovery following the impacts of COVID-19.

Background – a contributions system long overdue for reform

The NSW contributions system has been widely criticised for many years, with concerns ranging from a lack of transparency and certainty, to issues of fairness, and contributions adding to housing unaffordability and impacting the feasibility of projects.

However, despite numerous calls for reform, little improvement has been made to the contributions system in over a decade. The NSW Minister for Planning and Public Spaces (Planning Minister) recently acknowledged that contributions reform has been stuck in the 'too-hard basket' for too long.

Fixing the uncertainty of developer contributions with a view to driving investment in NSW was one of four key areas for reform to the NSW planning system announced by the Premier in November 2019. On 15 April 2020, the NSW Government announced two significant developments in relation to the contributions system:

1. a review by the Productivity Commissioner, to be completed by the end of 2020; and
2. five more immediate 'system improvements', which are currently on exhibition.

Infrastructure contributions system improvements

The NSW Government has released five documents outlining proposed changes to the contributions system for public comment, as follows:  

1. Draft Practice Note on Planning Agreements – The DPIE has released an updated draft 'Planning Agreements Practice Note' which is said to respond to submissions made in relation to the earlier draft practice note prepared in 2017, and the recommendations of the Kaldas Review of Governance in the NSW Planning System. A draft Ministerial Direction has also been published which, if adopted, will require councils to have regard to the practice note when negotiating or preparing a planning agreement. Learn more. 
2. Discussion Paper: Improving the review of local infrastructure contributions plans – The discussion paper identifies a series of measures intended to make the review of contributions plans by IPART more efficient. While the DPIE has recognised the need to maintain transparency and accountability in the review process, some of the proposed measures will reduce opportunities for developers and other members of the community to comment on proposed changes to contributions plans.
3. Discussion Paper: Criteria for councils to request a higher percentage levy – The DPIE has released a series of proposed criteria which are intended to provide clarity and guide the assessment of requests by councils to apply a levy under section 7.12 of the EPA Act above the standard 1% maximum.
4. Draft Special Infrastructure Contributions Guidelines – These guidelines aim to provide greater clarity regarding the purpose and objectives of special infrastructure contributions (SICs), key principles to guide the implementation and administration of the SIC framework and the process for allocating SIC revenue to infrastructure investment.
5. Proposed Amendments to the Environmental Planning and Assessment Regulation 2000 – The DPIE has released a Policy Paper and draft amending instrument, outlining proposed amendments to the Regulation to clarify the information to be provided by councils in relation to contributions received and how they are used, and to improve public access to information, amongst other things.

Over the next few weeks we will be taking a deep dive into each of these documents and will publish our analyses of the pros and cons of the proposed reforms as part of our 'NSW Contributions Review Series'.  Submissions in response to the public exhibition of these documents must be made by 12 June 2020.

Productivity Commission Review

At the same time as announcing these 'system improvements', the NSW Treasurer and Planning Minister announced the appointment of the NSW Productivity Commissioner, Peter Achterstraat, to undertake a comprehensive review of the infrastructure contributions system and make recommendations for reform. These recommendations are due by the end of 2020.

While a review of the contributions system through a productivity lens is a very welcome development, concerns have already been raised regarding the timing for the Productivity Commissioner's findings to be reported to the Planning Minister, and how the review is intended to interact (if at all) with the reforms concurrently being progressed by the DPIE. With submissions on the system improvement documents due by 12 June 2020, it appears these reforms are likely to be implemented ahead of the Planning Minister receiving the Productivity Commissioner's recommendations and without the benefit of those recommendations.

Interaction with Planning System Acceleration Program

The timing of the Productivity Commissioner's review also sits uneasily with the Government's recent recognition of the need to fast-track projects to assist with economic recovery following COVID-19.

There is a risk that any lack of coordination between these reforms, the Productivity Commissioner's review and the objectives of the Acceleration Program, will be a missed opportunity for development contributions reform.

The NSW Government has recently announced a Planning System Acceleration Program (Acceleration Program) which is intended to boost the construction pipeline. With infrastructure contributions being identified as one of the key barriers to investment in development, the review and reform of the contributions system would appear to be a vital step in achieving the objects of the Acceleration Program. However, given the Productivity Commissioner is not due to report until the end of this year, we are unlikely to see any further reforms (beyond the 'system improvements' already announced) to address the more fundamental issues with the contributions system until 2021.

It is also unclear whether the currently proposed 'system improvements' are intended to assist with the fast-tracking of projects in response to COVID-19, or have been released in accordance with longer-term plans to reform the contributions system, although the latter appears more likely. There is a risk that any lack of coordination between these reforms, the Productivity Commissioner's review and the objectives of the Acceleration Program, will be a missed opportunity for development contributions reform.

What next?

Submissions can be made in relation to the five 'system improvements' currently on exhibition until 12 June 2020. Given the potentially significant nature of some of these reforms, it is important for the development industry's voice to be clearly heard in this process. Please contact us if you would like any assistance in preparing a submission.

Also stay tuned for Part 2 of our NSW Contributions Review Series, where we will share our thoughts on the updated draft Practice Note on Planning Agreements.