Winston Peters was in Westport on Sunday, announcing that a future NZ First government would return 50 per cent of all mining royalties to the regions where mining occurs. It is one of the more sensible growth ideas to emerge from this election campaign so far.

The logic is simple. When a mine is proposed, local communities experience the disruption – the consent battles, the pressure on roads and services, the divided town meetings. Wellington gets the royalties. In those circumstances, local resistance to development is not irrational. It is a predictable response to a badly designed system.

New Zealand sits on extraordinary mineral wealth, yet it develops remarkably little of it. The standard explanation appeals to regulatory complexity – the Resource Management Act, consenting delays, and Department of Conservation restrictions. Those obstacles are real. But they miss a deeper cause.

When a consent application arrives, the council bears the processing costs, the legal exposure, and the community conflict, while the fiscal gains all flow to central government. The incentive for councils to find reasons to decline is built into the system. Outside established mining regions like the West Coast and Taranaki, councils have had little direct financial reason to champion development. And even in established mining regions, community support is hard to sustain.

The New Zealand Initiative’s 2015 report, From Red Tape to Green Gold, showed how this financial architecture creates a clear bias against development: councils bear consenting costs; central government captures the gains.

Fix the rules by all means – but fix the incentives too. When communities share directly in the benefits of development, they have a reason to negotiate, to engage, and to see a mine as partly theirs rather than something imposed on them.

New Zealand has been slow to learn that lesson. Central government has always been reluctant to share the royalty stream – royalties are a meaningful contribution to the Crown’s coffers. Giving them up would require trading short-term revenue for long-term development. It is a trade most governments have been unwilling to make. NZ First’s proposal suggests the penny may finally be dropping.

The 50 per cent figure is a reasonable starting point: large enough to matter to regional infrastructure budgets, but not so large as to leave central government without a meaningful return. For the West Coast, where mining is economically vital yet perpetually contested, retaining half the royalty stream could achieve what years of regulatory tinkering have not.

There are implementation questions to resolve – including how funds are to be distributed within regions and what governance arrangements will ensure revenues translate into genuine local benefit. These are legitimate details, but they are not arguments against the principle.

The concept has a strong pedigree. The New Zealand Initiative’s research on Switzerland – a country that has long absorbed high levels of population growth with a fraction of New Zealand’s development resistance – found that the explanation lies not in planning law or cultural attitudes but in incentives. Swiss cantons and councils have their own income tax-raising powers. Local growth means local revenue. So, they welcome development rather than resist it.

For years, New Zealand has treated opposition to development as a cultural or ideological problem. Often it is neither; it is an incentives problem. When the costs of a decision fall on the party responsible for making it, but the gains flow elsewhere, the predictable result is resistance – not because of bad intentions, but because of bad design.

Mining is not unique in this respect. The same misalignment runs through much of New Zealand’s public policy. Nowhere is it more visible than in housing.

Councils are expected to provide the horizontal infrastructure – roads, water, public transport – to accommodate new residents. The bills fall on local budgets while much of the tax revenue from growth – GST on spending, income tax from new workers – flows to central government. A council consenting a new subdivision is in much the same position as a council consenting a mine. The costs are local, but the fiscal gains are national.

New Zealand's housing affordability crisis – among the worst in the developed world – has proved stubbornly resistant to reform. Successive rounds of planning reform changes have helped at the margins. But the underlying problem has persisted because reform has consistently targeted the rules while leaving the incentives untouched.

The fix is the same: just as mining communities should share in royalties, councils should share in the GST generated by growth.

NZ First’s mining proposal is a genuine attempt to correct incentive misalignment in one important sector. It deserves cross-party attention. A government serious about growth would be asking how to extend it, not whether to adopt it.

If Wellington wants regions to say yes to growth, it must stop designing systems that make the rational answer “no.”

To read this article on the NZ Herald website, click here.