A special economic zone could allow a struggling region such as Manawatu/Whanganui or Northland or the East Coast to trial the relaxation either of national or local laws or the institution of revenue-raising measures to see if it might kick-start economic growth.
In exchange for relaxing the law, that local government would share in the benefits of economic growth, possibly through an income tax or GST sharing arrangement.
LGNZ did not spell out how they might work or for whom, but the idea is out there now and, unlike other regional development suggestions, has not been rejected outright.
The idea was initially promoted last September by New Zealand Initiative's head of research, Dr Eric Crampton, after a visit to Hong Kong.
China has used special zones extensively to try new ideas on relaxing taxes and other regulations, with great success, especially across the border from Hong Kong. Crampton also pointed to a special zone in Honduras to allow free trade and different types of government.
He 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 in Wellington and had 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 included the idea in the association's 10-point plan for local government funding reform released at this week's conference in Rotorua. He said such a zone could include minimising RMA rules, fast-tracking consents or even offering tax or rates relief.
LGNZ also suggested in its reform plan that 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 extra income taxes or GST produced in their region.
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 told the conference, the way councils are funded penalises attempts to grow.
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 that put up 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 for future growth through their rates.
Hartwich said funding reform was needed to incentivise councils.
"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 or can't afford rate increases needed to pay for new infrastructure.
Anyone doubting the reality of zombie towns need only compare house prices in the regions with those in Auckland, which is definitely in growth mode.
Auckland house prices have risen 60 per cent in the past five years, while in cities such as Whanganui, Gisborne, Whangarei and Rotorua they are substantially down.
The Northland byelection result showed the zombies could not be ignored.
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 will respond to special treatment.
