Government assistance for the Lee Valley dam would come from the proceeds of the highly controversial 49 per cent sale of state-owned assets, Nelson MP Nick Smith says.

Dr Smith has told Tasman district councillors that proceeds from the sale of assets would fund, among other initiatives, the contestable $400 million Irrigation Acceleration Fund, of which this region's share could be around $10m to $15m.

"I understand the community finds the asset sale controversial, but we need to free up capital to enable us to invest in projects," he said.

However, West Coast-Tasman MP Damien O'Connor said the sweetener sounded like a "desperate attempt to justify asset sales on the basis of funding local projects".

He doubted that the sales would generate enough funds to pay for promised broadband rollouts, the construction of new schools and hospitals and the repayment of national debt.

"The money the Government makes from the sales will be spent five times over, and New Zealand will understand this is a dumb deal."

For the community to rely on benefits flowing from the sale of assets was both naive and irresponsible, he said.

"Funding the dam is complex and a discussion which needs to be occurring."

Mr O'Connor said the West-Coast Tasman electorate had already gathered 3000 signatures for a national petition calling for a referendum to stop the sales. The local tally was likely to be a lot higher on the back of signatures gathered by other agencies.

Grey Power national president Roy Reid, of Takaka, said the promise of assistance for the dam was probably a red herring.

"[The Government] have even admitted in the last few days they do not know how much they could get [from the sales]. They could get considerably less than estimated. I don't think they will get enough to do what they say."

Dr Smith said the dam project fell into line with the Government's determination to shift the country's economy away from being driven by consumption to export and business growth.

The Government's pragmatic view was that it needed to be a partner in the project.

"Secure water rights realise net market returns and highlight the value of water and the dam as a sound project."

The irrigation fund was likely to be over-subscribed, but the dam project was ahead of its national competitors because its planning was well advanced and its development had been collaborative, he said.

The Government was not a bank, however, and expected a return on its investment, although Dr Smith said the Crown accepted there would be a period of no return until the take up of the irrigation grew.

The Government would start work on its irrigation fund model next year, he said.

Waimea Water Augmentation Committee chairman Murray King said the offer made sense. It was not a handout, and recognised ratepayer reluctance to fund the ultimate enhancement of the value of land owned by a few.

He said the Government recognised the value of the inter-generational project, which would not just bring economic benefit to produce industries but also security of urban and industrial water supply and improved recreational and environmental values, while solving issues of over-allocation and salt water intrusion.

Tasman Mayor Richard Kempthorne said Dr Smith's comments about possible government assistance were reassuring and would help in future community discussions with affected landowners on their contributions.

Currently, the just over 500 affected landowners in the dam's 6300-hectare zone would have to pay between $420 and $520 per hectare annually to build it over 25 years, whether they use the water or not.

Residents and businesses in all council urban water schemes would contribute to the 70 per cent share, while the other 30 per cent of the dam's cost – to pay for the environmental benefits of a higher flow in the Waimea River – will be paid for by the council and hoped-for contributions from the Government.