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Bernard Hickey explains how Councils could ease RMA and other restrictions to kick-start economic growth, and in exchange get a cut from Government of the fruits of that growth

Bernard Hickey explains how Councils could ease RMA and other restrictions to kick-start economic growth, and in exchange get a cut from Government of the fruits of that growth

By Bernard Hickey

Zombies are tricky to treat, as any fan of the distinctly dystopian television series The Walking Dead will know, and I'm one of those.

They can be corralled behind chain metal fences and then those fences have to be well maintained to stop an inevitable break-in'contamination event.' A treatment or cure for zombies is not something the hunted humans often contemplate.

So it's encouraging to see the Government is at least entertaining the idea floated publicly this week by Local Government New Zealand (LGNZ) for 'Special Economic Zones.' It shows the Government may be relaxing its more purist and laissez faire approach from before the Northland election and looking at some more pragmatic ideas.

A 'special economic zone' could allow a struggling region such as the Manawatu/Wanganui or Northland or the East Coast to trial the relaxation of either national or local laws or revenue raising measures to see if it might kick-start economic growth. Any local Government in that region would in exchange for relaxing the law then get to share in the benefits of economic growth, possibly through some sort of income tax or GST sharing arrangement.

LGNZ did not spell out exactly how they might work or who might use them, but the idea is out there now and, unusually, has not been rejected outright as other regional development suggestions have been in the past.

The idea was initially run up the flagpole in New Zealand last September by NZ Initiative Head of Research Dr Eric Crampton after a visit to Hong Kong. China has used special zones extensively to try out new ideas on relaxing taxes and other regulations, and with great success, especially across the border from Hong Kong. He also pointed to a special zone used in Honduras to allow free trade and different types of government. Dr Crampton suggested local Governments could relax Resource Management Act (RMA) rules in such a zone.

The NZ Initiative has since circulated more detailed economic zone ideas amongst policy makers in Wellington and received a positive reception from all sides. Another suggestion was for rules restricting overseas investment to be relaxed for a specific region.

LGNZ President Lawrence Yule then included the idea in the association's 10 point plan for local government funding reform released at this week's conference in Rotorua. He later said such a zone could include minimising RMA rules or fast-tracking consents, or even the potential for tax or rates relief.

LGNZ also suggested in its funding reform plan that the central Government share the fruits of any extra economic growth generated by such a zone, to provide an incentive for Councils to 'go for growth'. That could include granting Councils a share of income taxes or GST generated in their region from the extra growth.

The lack of incentives for growth in many regions is more of an issue than many think. As NZ Initiative Executive Director Dr Oliver Hartwich said to the conference, the way Councils are funded actually penalises attempts to 'go for growth'.

Councils need to invest in expensive infrastructure to encourage and handle growth, but their main tool for raising funds is taxing existing property owners, who regularly boot out councils who put up their rates to pay for that growth. Central Government, on the other hand, benefits from economic growth because it taxes spending and income, which expand naturally with growth. Income earners and spenders don't seem to mind paying taxes as they earn or spend, but are opposed to paying for infrastructure ahead of growth up front through their rates.

Dr Hartwich said funding reform was needed to incentivise councils to go for that growth.

"Growth shouldn't be seen as an unpleasant cost menace," he said.

It is a major issue for regions where populations are ageing and in some cases declining. Older ratepayers don't want to or can't afford to pay for the rate increases needed to pay for new infrastructure, which locks that region into a downward spiral of falling populations, squeezed budgets and eventually some tough decisions about winding back services such as water and roading networks. These are the 'zombie' towns popularised by the NZIER's Shamubeel Eaqub.

Anyone doubting the reality of 'zombie towns' need only look at house prices in the regions versus Auckland, which is definitely in growth mode. Auckland house prices have risen 60% in the last five years, while prices in cities such as Wanganui, Gisborne, Whangarei and Rotorua are substantially down. That is a new phenomenon. Previously, most New Zealand cities rose as one, albeit with a lag.

The Northland election result showed the zombies could not be ignored.

So perhaps not so surprisingly for a Government once reluctant to 'pick winners' in regions, Finance Minister Bill English and Economic Development Minister Steven Joyce were both receptive this week to the initial idea of special economic zones.

Let's hope these zombies can be cured with some special treatment. 


A version of this article has also appeared in the Herald on Sunday. It is here with permission.

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But growth is a "cost menace". What about the zombie suburbs of South Auckland.

The Auckland house price argument does not wash Bernard. Those rises come from external forces not econmic health.
Remember that internal immigration in New Zealand is out, repeat out, of Auckland and has been for a long time. Auckland may be more desirable a place to live than Mumbai. New Zealanders are leaving Aucklad for better times elsewhere in the country. You can make a better living in provincial New Zealand

NZ Inc should work together as one country, and not try to emulate Hong Kong.

Links to the actual detail of what NZ Initiative and/or LGNZ are talking about in relation to "relaxing rules" would be good. The only specific "rule" talked about above;

Another suggestion was for rules restricting overseas investment to be relaxed for a specific region.

Does not relate to a relaxation of RMA rules. The thing about RMA "rules" is that they are written by local authorities - the RMA itself is just a framework - it sets no specific "rules" - those are determined locally based on local preferences. That is not to say that all Regional and District Plans accurately reflect local preferences .. but that is another matter. The RMA was designed to be a permissive planning statute - if restrictions (i.e., "rules") are unnecessary, ill-conceived, poorly constructed etc. it has more to do with implementation of the RMA framework by local authorities. Which comes back to the caliber of elected LG officials .. the ones with the decision-making powers.

If by "relaxing rules" the reference is to relaxing/reducing the costs of Development Contributions (to fund infrastructure costs associated with growth) then that is a determination or "rule" made under the LGA, not the RMA. And this is what I assume the discussion that LGNZ refers to. It is an LGA matter - and it sounds like LGNZ are suggesting that central government needs to cost-share the funding of some of that regional growth through sharing in GST receipts etc. But it is also important to note that the level of Development Contributions (if any) is also a calculation set locally. Any local authority could decide not to charge them at all, I believe. But the point is, then how do they fund the costs of growth?

But, the point is - if a city/region is in decline, then there are not necessarily any costs associated with growth. There are however costs associated with maintenance and/or replacement of aging infrastructure (and with a declining population and a declining regional GDP, then yes, this cost becomes prohibitive).

I guess where I am coming to is that central government is probably better at looking to move some of its own business to the regions if it wants to spur economic growth. Think employment first - with job opportunities comes internal migration. So, for example, if you want to direct population away from Auckland, use disincentives to growth in the education sector in that city and "push" (through incentives) such government-owned enterprise growth out to the regions.

Add to my above point - a "push" proposal in the education sector.

What difference do Aucklanders think it would make to the ills of Auckland in terms of traffic congestion, population growth, house prices etc. etc. if central government banned any further enrollment of overseas students at Auckland University? In other words, until the city 'catches up' in relation to manageable growth, we have an Auckland University for NZ residents and citizens and foreign students on international scholarships only. No more fee paying students from overseas there, but okay throughout the rest of the country?

I'm curious to know how Aucklanders think that might ease some of their problems?

Of course, added to the mix, every University, Polytechnic, PTE from every other region has setup satellite 'campuses' in Queen St., trying to makeup their budget deficits by pouring 1000s of International students into their Auckland based International 'campuses'. So now we have a 20% or similar financial dependency on international students by non-Auckland tertiary institutes, as well as the legitimate Auckland-based unis such as Auckland Uni, AUT etc.

Most International students prefer Auckland due to perceived more multicultural environment & the job market.
All enthusiastically cheered on by Immigration NZ who are using this as an immigration portal and thus saving them money & resources. - if the student passes the programme then they get the 1 year work permit leading to Permanent Residency.
As to our universities trying to maintain authentic academic standards under these circumstances , well, we won't go there. Once again, financial imperatives rule.

Quite right - rather than just Auckland Uni - it would need to mean all tertiary institutes in AKL would come under the same ban. That would send the (largely) international satellite campuses back home as well. :-).

What if this belief in "economic growth" is in fact the zombie infection?

Here we are talking about halting/arresting decline. I agree it is a shame the arguments are instead framed as promoting 'growth'.

History Bernard, history. Research the history Bernard

NZ has been there and done that already. It failed spectacularly

From memory it was in the 1970's, the NZ Government began pouring hundreds of millions into Regional subsidies to encourage regional councils to expand infrastructure and businesses to re-locate into the regions. Many businesses did and failed. That was at a time when there weren't the restrictions of today

Didn't work. Seek out some old time politicians of yester-year and ask them.
Roger Douglas could give you a full explanation why it failed.
He will know. Just try.

Yes, but I think they were largely incentives provided to the private sector to try and spur growth.

I'm saying move government business out to the regions - there are a heap of Crown entities that do not need to be domiciled in Wellington. Take Pharmac, around 100 staff that perhaps would be better domiciled in Dunedin - if a government wanted to make Dunedin a centre of excellence in health care for example.

It really just boils down to having a government willing to look at their place in the economy - as opposed to trying to promote/"push" private sector activity in the economy.

Here in Melbourne, the Victorian State Government has all the same problems as Auckland

As you recommend, it has already moved many of the State Government Departments to the regions. Still not enough. It has been running advertising campaigns for the past two years to encourage people to re-locate to the regions

It is offering major incentives to Regional Councils and businesses

At least they are doing it. They didn't need to go to Hong Kong or set up economic zones

Regional Development

Chinese naval base in Dunedin will do the job nicely.

But that was Before Al Gore invented the InterWebs.....

Tinkering - so true

What bothers me is they come up with these thought bubbles without the thought - or research

My partner is a health professional. Last week was talking to a fellow health professional who happens to be chinese, who's husband is also chinese

She was discussing our move to rural New Zealand, getting away from the teeming city, where our nearest neighbour will be 1 kilometre away

Fellow health professional was aghast. She explained chinese émigré's seek the teeming closeness of large cities and will never voluntarily locate into provincial, or rural, or semi-rural locations - at all

Indeed, though that is a not unusual snobbery outlook on that chinese's part. However some if not many chinese hold peasants (farmers) in low regard, hardly surprising such chinese wouldn't move to "peasantville".

Wonderful, the government wants to import the failed Silicon Valley development model with its fractured social fabric, entrenched inequality, lobbying of the political establishment for concessions on immigration policy and taxation, and the inflation of property prices and the cost of living which only further burdens the peons who provide the amenities enjoyed by these privileged tech elites. Just wonderful.

Given our association with major developing-nation status via our collapsing NZD/USD currency valuation metric, tinkering is as good as it's ever going to get and as for the ideology - who knows?

An index of the major developing-nation currencies fell to an all-time low this week, extending its drop over the past year to 19 percent, according to data compiled by Bloomberg going back to 1999. The Russian ruble, Colombia's peso and the Brazilian real have fallen more than 30 percent over the past year for some of the worst global selloffs. Read more

Note : NZD/USD down 25.41% from 0.88086 as of 7 July 2014 to 0.6570 on Friday night's US close.

Part of this argument is that regions with declining populations have trouble funding infrastructure. We can now assume that Auckland has extensive infrastucture, adequate facilities, and no problem at all paying for it. Yeah right.

this situation started during rogernomics with the closing of numerous regional government departments when they were privatised.
no amount of tinkering will reverse it anytime soon.
they need to start to think outside the box and start to ask private enterprise what would encourage them to move operations out of Auckland.
in my industry over the last ten years most companies have closed their offices though out the country and relocated to Auckland even though with broadband, modern software and EDI some could be done just as easy and cheaper out of auckland

It's actually a half-sensible suggestion from the LGA: but it has a lotta fish-hooks upon even a cursory examination:

- it requires regional sales or income taxes. Few NZ organisations can handle layered tax (e.g. city+state+federal) so there's an immediate implementation issue.

- it requires central Gubmint to devolve some taxing powers or at least give up its claim to some fraction of that. This won't go down well at 1 The Terrace. Or with the public-sector unions who will, and probably rightly, see a further splintering of their base.

- it exposes LG to a reverse takeover: in contemplating the muddle that many TLA's are in financially, thanks to their heedless rush into soft spend which is proving hard to unwind, juxtaposed against their demand for Mo' Moolah, CG might just decide to cut the Gordian knot and disestablish the whole sorry crew and use its taxing powers to directly fund another - er - sorry crew.

I think the phrase is 'be careful wotcha wish for'.....

I hope they don't relocate government departments to the regions. Surely the NZTA's epic failure to provide public transport infrastructure to Auckland is an example of how small town thinking can be detrimental. Even now they are spending almost all of Auckland's transport budget on roads when the rest of the world (even LA) have realised that you can't fix congestion by building more roads, and there is also a generational shift away from roads.

Some winners will need to be picked, as any modern city will need significant infrastructure to even get to the start line. So probably the university cities plus Queenstown, Tauranga, maybe Whangarei and Invercargill for different reasons. Am sorry to say anywhere else looks a local niche play, and will need to make the most of being local, supported with tourism. Get enough critical mass to move from vicious cycle to virtuous circle, where airlines want to go there and so on.
A priority actually seems to be Christchurch, given the news that rebuilding is already slowing, and that the CBD is not being invested in. Already one imagines a bunch of tradies upping sticks and moving to (or back to) Auckland where building needs to be strong to meet demand apparently.
Then apply some incentives to attract a key magnet or two, where a magnet could be a significant new industry or hub. Probably will require direct incentives. Could include a Chinese/ Indian company or base, if you wish to attract some critical mass of new major ethnic communities. That won't be an easy sell though. Could be a government department.
It's hard to see it happening without central government financial assistance. Aucklanders may welcome such a move, although would be sweetened if proportional matching investment went into their transport.

Don't know what the RMA rules can do for regions.

Nationals newly announced immigration policy giving 30 extra points if moving outside Auckland will do a lot more, although mainly for welly, ham, p.n, dun and chch, smaller towns relative to these larger or uni/hospital based cities will still be unattractive

and how will they police it, my guess is it will be used as a short turn stop before heading to Auckland. also its not to come off the total number of immigrants but is additional.

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Days to the General Election: 40
See Party Policies here. Party Lists here.