Grey district mayor Tony Kokshoorn says the Government should use the royalties it receives from coalmining to pay compensation to the families of the 29 men killed in the Pike River mine.
The mine's owner at the time of the November 2010 disaster, Pike River Coal Ltd, was last week fined $760,000 and ordered to pay reparation of just under $3.5 million.
But the company, which is in receivership, has just $156,000 left in its bank account.
Mr Kokshoorn says it would be a great gesture for the Government to pay the reparation costs out of the mining royalties it collects.
He says the royalties fund receives at least $3.5 million a year, and it makes sense to pay the families with money that comes from the coal industry.