Cabinet papers show Treasury opposed the Government's decision announced on Monday to increase and extend the rebate for large and small screen productions, arguing the scheme had delivered only small economic benefits and actually cost the Government a net NZ$168 million since its introduction in 2004.
Treasury estimated the current subsidy scheme had delivered net economic benefits of just NZ$13.6 million over its first seven years from 2004 to 2011 at an annual rate of return of less than 1%. The cabinet papers show the Government spent NZ$472.48 million through the Large Screen Production Grant (LBSPG) from 2004 to September 2013 to encourage spending of NZ$3.308 billion or an average of NZ$52.49 million per year.
"The current regime is also estimated to have had an overall negative fiscal impact of NZ$168 million once tax revenue that would have been earned anyway is taken into account," Treasury was quoted as saying in the cabinet paper released with the decision.
Arts, Culture and Heritage Minister Chris Finlayson, Economic Development Minister Steven Joyce and Prime Minister John Key announced a Memorandum of Understanding with 20th Century Fox and Director James Cameron on Monday that would see NZ$500 million spent in New Zealand making the next three Avatar movies. They also announced changes to the rebates for Large Budget Screen Productions and for New Zealand productions that would see the rebates rise from 15% to as high as 25% if certain criteria for local content is met. They announced the combination of the LBSPG and Screen Production Incentive Fund (SPIF) into one scheme.
The MOU on the new Avatar movies agreed that New Zealand would host at least one official red carpet premiere and that a featurette on New Zealand would be included in DVDs and Blu Ray discs.
The high New Zealand dollar was not mentioned in any of the press releases with the decision, but it was a factor throughout the background papers on the decision, as was increases in incentives by other countries for such productions.
"Countries that are engaging in using increasingly generous incentives to entice international business are effectively promoting a 'race to the bottom' mentality," the Offices of the Minister for Economic Development and the Minister for the Arts, Culture and Heritage said in the cabinet paper.
"New Zealand should not simply seek to compete on this basis as in the longer term this is likely to lead to an economic loss to New Zealand and it will not assist in building sustainable screen businesses," they said, adding that New Zealand had natural advantages with its skilled workforce.
"Having said that, we consider there is a case for revisiting the current screen initiatives in the shorter term in order to provide a breathing space within which to develop a more sustainable industry that generates more domestically owned IP which is more strongly linked to New Zealand," they said, noting other countries were offering increasingly generous grant rebates and tax relief to attract productions.
Sir Peter Jackson commented
"These factors, coupled with the sustained high value of the dollar, have prompted us to take another look at screen production incentive settings," they said, also noting an industry crisis summit in Auckland on November 14 and the reported concerns of Sir Peter Jackson that "unless action is taken, New Zealand will lose much of the world class capability and reputation that has been successfully built up over the last decade."
The cabinet paper also make clear the changes announced on Tuesday had not been costed and the cabinet minute noted the Arts, Culture and Heritage ministry would have to have to develop extra funding proposals for the New Zealand Film Commission and Film NZ for the 2014 Budget.
It also showed the Government had yet to develop a mechanism to eventually wean the industry off the subsidies. The cabinet minute directed MBIE and the Ministry of Culture and Heritage to report back by March 2014 "on proposals for an ongoing review process to ensure that New Zealand's incentives for overseas productions remain appropriate."
Treasury went on to say in the cabinet papers that: "Permanently matching overseas subsidies to generate activity in New Zealand is not a sound basis for economic development policy and favours the film industry over other sectors."
Treasury advised there was no clear urgency for the large scale changes to the schemes and said they should be considered as part of the Budget 2014 process given it involved a fiscal impact. It added the cabinet paper did not outline the fiscal implications and they should be before any decision was made.
"If Ministers consider decisions are needed quickly to retain the Avatar production in New Zealand, Cabinet could consider a one-off increase in support for that production only," Treasury advised.