New Zealand government is highly centralised. Local government has remit over relatively little. That, by itself, is not necessarily a problem – reasonable people can disagree about how much devolution is really a good idea. But we are missing out on one big advantage of federal systems like America and Canada. In federal systems, different provinces or states can try out different policies and learn from each others’ successes and failures. Those are always limited by the powers that the provinces have relative to central government, but that kind of learning can work. When America embarked on welfare reform in the mid-1990s, it explicitly harnessed its ability to run 50 different state-level experiments to find out what worked. New Zealand’s policy reforms instead hit all, or none.
We suggest using existing district and regional councils to test-bed policy reforms in the places that want to try them out. Instead of changing the overseas investment act for the whole country, and buying a big ideological fight over it, why not loosen the rules for the Greater Wellington area and evaluate what’s happened? RMA reform has proven impossible. But if the West Coast of the South Island wanted to try a different version of the RMA making it easier to consent sustainable mining activities, and if Auckland wanted to try one focused on achieving housing affordability, why not let them try it?
We couple the policy trial zone suggestion with a tax sharing mechanism so that local councils would have strong incentive to propose the kinds of special economic zones that would do the most good for their regions. Councils presiding over stronger economic growth should receive some of the increased tax revenue that otherwise flows only to the Beehive. We do not flesh it out in great detail, as there are many ways that could work and that would satisfy the principle. But if median regional GDP growth for Auckland has been around 5%, then it could receive a small share of any growth in remitted taxes below 5%, but an increasing share for increases above 5%. And regions that have grown more slowly would face lower benchmarks.
- While we give a few suggestions of policy trial zones that we think would be good ideas, the zones should really emerge from what locals see as the central government regulations and policies holding them back.
- Central government should only authorise a policy reform zone where it would be happy for the policy to be taken up by any other region wanting it. Otherwise, it could turn too easily into dirigiste central-government winner-picking.
The report has received decent initial coverage. Oliver talked about the report on Q&A on Sunday; the video is embedded below. The NBR provides an excellent transcript.
I hope to see some of you at our launch tonight.