Gordon Campbell on the new level of film industry incentives

If Treasury ideologues had been around back in the day, we would still be waiting for the private sector to build a road and rail system in New Zealand beyond a few cherry-picked main centres important to commerce. (Treasury’s notion of the proper partnership between government and business doesn’t seem to extend much beyond removing the regulatory oversight by one, of the other.) Thus, Treasury’s opposition to the latest incentives to the film and television industry seems as irrational as it is predictable, while its measurement of the net returns from such investment remains suspiciously narrow. Frankly, it is difficult to see how a 15-25% rebate based on a prior foreign studio spend of 75-85% can possibly deliver only negligible benefits – and that’s before you consider the multiplier effects of that foreign input as it circulates around the domestic economy, and of any spinoff benefits in IP innovation, gaming activity, national profile, inbound tourism, etc generated by international film projects. Add in that some of this economic activity 2009-2012 was being generated in the teeth of the GFC, and the value of the film rebates looks like a no-brainer.

Sure, it may theoretically be the case that you could derive similar benefits from a similar situation in other industries, so why selectively endorse film ? Duh….because its there, and because it’s working? If a similar value added cluster of activities with similar IP potential and a comparable track record of cutting edge expertise and foreign investment should present itself at Steven Joyce’s office door, its claims to support would probably be assessed on merit. Bewailing the support to the film industry as a “picking winners” policy because theoretically other industries could theoretically make a similar case is to ignore the obvious – that’s its up to those sectors allegedly being denied support to make their case. Maybe there is a budding IKEA out there in forestry that’s being denied help, while we ship out raw logs. Maybe ditto with some genius plan to add value to milk powder. Yet rather than decrying – on principle – the assistance earned by the film industry, other sectors should be making their own case for state assistance.

The ironic thing about the current film industry incentives is that you can trace their origins back to ideas promoted by the Treasury of the day. Back in 1990, the ideas of Harvard’s Michael Porter – about the state’s role in creating and fostering knowledge clusters – were the flavour of the month at Treasury. As a national planning strategy, the Porter clusters have been defined as “a geographical location where enough resources and competences amass to reach a critical threshold, giving it a key position in a given economic branch of activity, and with a decisive sustainable competitive advantage over other places, or even a world supremacy in that field.” The film industry has done exactly that, on the back of Peter Jackson.

By the late 1990s it was doing so via tax breaks akin to those previously offered in the 1980s to the film and bloodstock industries. With the bipartisan agreement of Michael Cullen and Bill Birch, these tax incentives were grand-parented for Lord of the Rings and then phased out. They were replaced by the current rebate scheme devised by Jim Anderton, to ensure that tax incentives levied off film investment could not make pre-emptive raids on the government coffers, but would be available only in the form of rebates after the benefits of the production spend had accrued to New Zealand. It is this rebate scheme that John Key, Steven Joyce and Chris Finlayson have just agreed to rachet upwards (a) to ensure that New Zealand remains globally competitive as a film and television production destination and (b) to attract and generate foreign investment to mitigate the effects of the current slump in production.

It says something telling about the pragmatism of the Key government that it can do such a U-turn only weeks after decrying the “race to the bottom” that this could be said to entail. In fact, the government hasn’t simply increased the headline rate of rebate. It has unveiled a stepped scheme (20-25%) based on the scale of the projects. You could call the 25% top rate the Avatar clause, because the conditions seem to have been devised simply to attract and retain the next three Avatar films in this country. To qualify for the 25% level, the Avatar films will need to spend $NZ500 million in this country, and ensure that 90% of the visual effects/post production spend on at least one of the Avatar films is allocated to New Zealand facilities. (Presumably, Weta and its associates will benefit from this, and can plan accordingly.)

Nothing entirely new about such an arrangement. Some 14 years ago, we devised legislation around the tax breaks for Lord of the Rings for the same reason: that such projects bring value, and are the foundation stones for current activity and future growth. Would Avatar 2, 3 and 4 have stayed here even without what is in effect a 10% top up in James Cameron’s production rebate? We will never know how that particular game of chicken might have played out. Treasury seems to assume that our natural scenery and current level of skills expertise will (or should be required to) triumph unaided, over such messy economic realities. Dream on.

What are the details of the new incentive structure? As mentioned, it doesn’t merely hike the headline rate of the major project rebate – although going up from 15% to 20% will certainly help, and the added 25% rate for mega-projects has already secured the Avatar sequels. The combination of the Large Budget Screen Production Grant (LBSPG) and the Screen Production Incentive Fund (SPIF) into a single scheme (to be called the New Zealand Screen Production Grant) will retain the current 40% rebate available under the SPIF.

It is not as if the local industry has been sitting around waiting for its next handout. In early December, Film Wellington and Grow Wellington used the second Hobbit film premiere as a lure to invite a group of Hollywood writers and television show-runners to a function at the New Zealand consulate in Los Angeles, with the aim of bringing some of them to Wellington in 2014.

“Our talent pool in New Zealand needs expanding around writing for television,” says Film Wellington manager Nicci Lock. “If we are to develop a highly profitable New Zealand television export industry, one that creates and owns its own IP, we must develop head writers or show runners who are experienced in the global market. These writers will, in turn, help to develop and nurture the talent of up and coming local writers and give them exposure and experience on international level production.”

In January and later in 2014, we will see how that, and other local efforts, pan out. Ultimately, should we be expecting to see a level of bi-partisan political support for an incentive scheme devised by Jim Anderton, and sustained and expanded by Steven Joyce? Probably we would – if not for the 19th century industrial relations practices of the industry that Key gratuitously set in stone during the Hobbit dispute. The changes to employment law – pushed through to overturn a court ruling on the status and treatment of de facto employees – has created a virtual charter for exploitation of workers in the film industry. In doing so, it has helped perpetuate what are arguably unsafe work conditions out of step with the government’s post-Pike River emphasis on workplace safety. Labour‘s David Cunliffe can afford to applaud the government’s pragmatic support for a leading knowledge industry sector, while promising – if elected – to revisit the working conditions in the film industry, to ensure they comply with 21st century rights and obligations.