Prime Minister Malcolm Turnbull will scrap what he calls blank cheques for state and local government infrastructure projects and announce a ramp-up of debt to fund major schemes.
The move – on the condition state and local authorities can rigorously demonstrate their economic benefits of the projects – is part of a major infrastructure push to be announced in Melbourne on Friday and to be detailed in the federal budget.
To be called Smart Cities, the project will begin with a $50 million allocation for planning and the brokering of deals between the Commonwealth and private funders that want to leverage its balance sheet.
The Prime Minister plans to issue long-dated bonds – perhaps up to 30 years – to lock in historically low interest rates to part-fund projects such as Sydney's Badgerys Creek airport, Melbourne's Metro Rail and Brisbane's Cross River Rail.
The funding would be delivered on the condition recipients show it would return to the Commonwealth through demonstrated faster economic growth and higher tax revenue, as well as "value capture" charges on businesses that benefit from the developments.
On Tuesday the Victorian government walked away from negotiations with the Commonwealth over the $11 billion Melbourne Metro project, saying it was imposing too many conditions.
The policy document champions the concept of a "30-minute city" – one in which, "no matter where you live, you can easily access the places you need to visit on a daily basis". Mr Turnbull believes such cities will allow people to live further from the centre, making housing more affordable.
The document states that pressure is growing on "housing affordability, access to local jobs and our natural environment, as well as increasing congestion and traffic".
"To secure our future prosperity and global competitiveness, all levels of government need to work in partnership to support our cities big and small."
The government will "prioritise projects that meet broader economic and city objectives, such as accessibility, jobs, affordable housing and healthy environments".
Cities Minister Angus Taylor said the Commonwealth was interested in outcomes, "not just handing over a blank cheque".
"If we are to have the impact we want in cities policy – facilitating quality jobs, more housing and better connectivity – as well as a return to taxpayers, we need investments, not grants," he said ahead of the launch.
The Commonwealth, he said, would use its "massive balance sheet" to back projects that could deliver a return on investment and improve access to affordable housing.
"We don't need a bank – we don't even need a fund – you just need projects that can deliver a modest return and a broad economic benefit to an area," he said.
"The Commonwealth can invest , and we are doing it now with the Clean Energy Finance Corporation and the National Broadband Network. And we are planning to do it in the very near future with the Northern Australian infrastructure fund.
"What we do in all those cases is use the Commonwealth government balance sheet to finance infrastructure projects that are going to deliver a broad impact."
The program will spark fears about the resulting size of the Commonwealth debt, concerns Mr Turnbull believes can be mitigated by the rigorous requirements for demonstrating economic payoffs.
As the projects that are developed are sold, the Prime Minister believes net debt will come down.
Reserve Bank governor Glenn Stevens expressed support in principle for the idea at a banking conference in New York last week, saying governments should be able to find projects that at current bond rates provided returns "comfortably above their cost of funding".
The Commonwealth is likely to be able to borrow for 30 years at a rate of less than 4 per cent. To date, its longest-issued bond is 22 years.
Mr Taylor said the financing unit would look to attract recruits from the private sector, which had experience in putting together infrastructure deals.
