This Technical Paper outlines our recommended approach to calculating the discount rate and other aspects of modelling local infrastructure contributions using a net present value (NPV) approach. The NPV approach involves using a discounted cash flow model, where contribution rates are calculated so that the present value of anticipated revenue from future development is equal to the present value of anticipated costs of the infrastructure needed to service future development. We publish the latest recommended nominal and real discount rates biannually on our website in February and August each year. See Local government discount rate.
We first published a Technical Paper on modelling contributions in September 2012 and revised the paper in June 2015, February 2016 and August 2018. The purpose of this update to the Technical Paper is to improve clarity for councils seeking to use the NPV approach in cases where they are:
- revising or updating an existing contributions plan or
- making a new contributions plan in a precinct where development is already underway or where development approvals have already commenced.
Councils have the option of using a NPV approach when determining contribution rates in a contributions plan. We do not insist that councils use an NPV approach however, if they do, we recommend they use the assumptions outlined in this paper.
This update does not represent a change to IPART’s current approach but clarifies that councils should update their net present value model when their contributions plans are reviewed, and the model should be adjusted to ensure that accurate apportionment is maintained. That is, where infrastructure costs have escalated faster than originally modelled and anticipated, future developments should continue to only contribute their portion of the escalated costs and not the entire escalated costs. The same principle applies when costs have escalated slower than originally modelled.
Current
Previous (superseded)