Indexing contribution rates and conditions of consent

Indexation is the process of adjusting the contributions to reflect changes to pricing over time. Contributions should be indexed to maintain their real value by adjusting them in line with changes in the cost of providing the infrastructure. Indexing helps ensure that developers pay the same amount, in real terms, regardless of when they pay their contributions. Councils can index:

the contribution rates in a section 7.11 plan
the section 7.11 contribution amount in a condition of consent at the time of payment
the cost of development used to calculate the section 7.12 levy at time of payment

This module details how indexation is applied in the contributions system.

Legislative requirements

Councils must decide which indexes to use and whether to index quarterly or annually. This information must then be detailed in the relevant contributions plan.

Indexation requirements
Legislative requirements	Reference
Councils can index contribution rates in a section 7.11 plan without the need to prepare a new plan. Councils can use either: a readily accessible index an index prepared for the council. The index and timing of adjustments must be adopted in the plan.	215(5)(b) EP&A Regulation
Councils recouping costs through a section 7.11 plan for land already purchased or works already completed can index the original cost amounts. This must be done using the Consumer Price Index.	207 EP&A Regulation
Councils can index the proposed cost of development used to calculate a section 7.12 levy before payment. The index must be readily accessible and adopted by the plan, along with the timing of adjustments. The index and timing should also be referenced in the condition.	208(5) EP&A Regulation 212(2)(b) EP&A Regulation

Policy positions

Contribution rates in section 7.11 plans should be indexed

The rate table in a section 7.11 plan includes the base rates calculated at the time the plan was adopted. However, these rates should be indexed as outlined in the contributions plan to ensure they remain current. The contributions plan must specify how it will adjust the contribution rates, the indexes to be used, the contribution rates they apply to and whether the adjustment will be quarterly or annually.

The different components of the infrastructure costs in a section 7.11 plan can be indexed separately.

Cost of infrastructure yet to be provided can be indexed by applying any readily accessible index.
Cost of infrastructure already provided and being recouped by the council must be adjusted by applying the Consumer Price Index. 
Frequency of indexation can be quarterly or annually.

Councils must publish the most up to date contribution rates on their websites and on the NSW planning portal as part of their publication requirements. This means that the rates must be published again each time they are indexed.

If the process of indexation puts a rate over the maximum threshold, this will trigger a review by IPART if the council wishes to impose the higher contribution.

Contributions amounts should be indexed at the time of payment

The contribution amounts in conditions of consent for both section 7.11 contributions and section 7.12 levies should be indexed at the time of payment with the index adopted by the contributions plan. For example, if the plan adopts quarterly indexation and the contribution is not paid in the quarter the consent is issued, the amount should be indexed to reflect the quarter it is paid in.

Councils must include an indexation section in the plan detailing how it will adjust the contribution amount between the granting of consent and the time of payment and must reference the index to be used.

The condition of consent should specify that the indexation will occur as outlined in the contributions plan.

Best practice guidance

Councils can adopt an appropriate index

The index to be used for recoupment under section 7.11 plans is specified in the regulations and must be the Consumer Price Index.

Councils have the discretion to adopt any readily accessible index or an index prepared for the council for section 7.12 plans and non-recoupment costs in section 7.11 plans.

Councils should choose an index that accurately reflects how the land or infrastructure costs will change over time, while also balancing the need for simplicity and consistency in the plan.

For some plans it can be necessary to use more than one index. For example, in areas where land costs are increasing quickly, a land price index may be more appropriate than using CPI or PPI. If adopting more than one index for different contribution rates in a section 7.11 plan, the plan must clearly state which index will be used for which rate.
In many instances it may be simpler for councils to select only one index, and to select common and easily accessible indexes. Using different indexes for separate components of the plan introduces more complexity and increases the administrative tasks required to maintain the plan. Councils should balance accuracy with simplicity and ease of application, especially in instances where using different indexes is unlikely to have a significant impact on revenue.

The Australian Bureau of Statistics publishes indexes that councils can consider. Indexes produced by the ABS are publicly accessible and transparent. Some common indexes are shown below.

Common indexes councils can consider
Indexes	Appropriate use	Description
ABS Consumer Price Index	Must be used for section 7.11 recoupment costs Can be appropriate for all costs in a plan	Broad measure of price change. Highly accessible index that is easy to use. Councils are required to use CPI for section 7.11 recoupment costs, so it is often the simplest index to use for all costs.
ABS Producer Price Index PPI also has subsets such as PPI Roads and Bridges or PPI Non-residential Building Construction	Construction costs	Producer Price Index may be appropriate for section 7.11 construction costs. PPI measures average price changes from the perspective of industries that produce goods and services. There are also subsets to PPI. For example: PPI - Road and Bridge Construction NSW can accurately reflect changes in the cost of roads and stormwater. PPI – Non-residential Building Construction can accurately reflect some works, such as open space works and community facility buildings. PPI can also be appropriate for indexing the cost of development used to calculate the section 7.12 levy.
ABS published indexes relating to property prices, such as Median Price of Established House Transfers Index	Land	These indexes may be appropriate for indexing the cost of land prices of land with existing dwelling (when councils are acquiring occupied land) as they are likely to reflect the land acquisition costs more closely, compared to the CPI or PPI. However, these indexes can be more volatile than CPI or PPI, which can increase complexity and the potential of unanticipated impacts on revenue.
Bespoke land price index	Land	Using a specific land value index detailed in and adopted by the plan may be appropriate, as costs to acquire land often escalate at a much higher rate than infrastructure construction costs and can be locationally specific.

Procedure and process

How to index contribution rates in a section 7.11 plan

Contribution rates should be indexed to ensure they remain current. A simple formula is:

indexed contribution rate = base contributions rate x (current index figure / base index figure)

Base contributions rate is the rate at the time the plan was adopted.
Current index figure is the figure at the time of consent.
Base index figure is the figure at the time the plan was adopted.

How to index 7.11 contribution amounts at time of payment

At the time of payment, the contribution amount owed can be recalculated using the indexed contribution rates applicable at the time of payment or it can be indexed in line with the method detailed in the plan. A simple formula is:

contribution amount at payment = consent amount x (current index figure / consent index figure

Consent amount is the original contribution amount listed in the condition of consent.
Current index figure is the figure at the time of payment.
Consent index figure is the figure at the time the consent was issued.

How to index the cost of development for a section 7.12 levy

At the time of payment, the proposed cost of development can be indexed and then a new levy amount is calculated for payment.

indexed cost of development = cost of development at consent x (current index figure / consent index figure)

Cost of development at consent is the cost calculated and listed in the condition of consent.
Current index figure is the figure at the time of payment.
Consent index figure is the figure at the time the consent was issued.

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