16/06/2023

Sink or swim? Government must deliver more with its review of New Zealand’s Screen Production Rebate

After a lengthy process, the government’s long-awaited review of its investment in the screen sector is due out at the end of July 2023.  Foreshadowing the review, ministers Carmel Sepuloni (Arts, Culture and Heritage) and Barbara Edmonds (Economic Development) announced on 30 May the Government’s continued support of financial “incentives that make New Zealand competitive and more attractive to film production companies”.

While the changes flagged by the ministers’ press release address some of the screen industry’s concerns and make improvements to existing settings, particularly the welcome expanded funding for domestic screen productions, they adopt a “dabbling” approach rather than something “bold and trenchant”.  This dabbling will simply not be enough to keep New Zealand competitive and attractive as a screen production destination, and as a vibrant home for our 21,000 talented screen sector workforce.  Recent changes across the Tasman seriously threaten the future of NZ’s screen industry and the Ministers’ failure to recognise these changes undermines their stated views about the effectiveness of their proposals.

In its “headwinds to tailwinds” budget on 9 May, the Albanese Government delivered a significant boost to Australia’s screen industry.  From 1 July 2023, screen productions choosing to spend A$20 million or more filming in Australia will be able to access a streamlined and guaranteed screen incentive of 30%.  On top of this, current Australian state level incentives offer an additional 8% to 10% for filming locally.  Production companies undertaking visual and digital effects work from Australian VFX suppliers already receive a 30% rebate which will continue.  Australian screen industry sources describe this move as a “transformative game-changer” attracting even more international screen productions and building a resilient domestic screen sector.

By comparison to Australia’s 30% rate setting, NZ’s current 20% screen incentive rate for both live-action and post, digital & visual effects (PDV) work (after a small adjustment for PDV by the Screen Sector Review) are left “way behind” and internationally unattractive.  Proposals to “simplify” the criteria around the 5% uplift for large-scale international productions offer marginal help, but this uplift remains only rarely available.

NZ has had strong prime ministerial support for its screen industry in the past; both Jacinda Ardern and John Key were committed to ongoing investment in the industry.  Indeed, in 2014 John Key rejected Treasury advice and increased screen incentives from 15% to 20%, making a wider judgement about what is in the national interest.  His intervention then has paid massive dividends to the country from the resulting growth of NZ’s screen industry.

Following these 2014 rate changes, the NZ screen industry has successfully grown, forging a notable profile within the international screen industry.  This development over the past 10 years, now sees the industry contributing more than $3.5 billion to our economy each year, directly employing close to 21,000 persons in 2020/21.  Benefits also flow into other sectors; hospitality, accommodation, construction, transport and tourism; all-important filming infrastructure has developed and continues to do so, while our creative talent and skilled screen workforce has been building.

NZ has put itself on the global stage attracting internationally acclaimed live-action productions, including recently the Avatar sequels, The Lord of the Rings: The Rings of Power, The Power of the Dog, Power Rangers, Cowboy Bebop, Evil Dead Rise and Sweet Tooth, and iconic domestic productions, like Hunt for the Wilderpeople, Boy, Whale Rider, and many others.

Government funded screen incentives stimulate and attract screen productions, in turn generating and delivering positive economic returns nationally.  The multitude of countries providing government incentives recognise this economic stimulus.  The NZFC’s (Olsberg SPI) July 2022 report on the Economic Impact of the New Zealand Aotearoa Screen Production Sector concluded NZ screen rebates generate a total ROI of 6.15, meaning for every $1 of screen production incentive, $6.15 of additional economic value is generated.

Similar ROI metrics were evidenced from Oxford Economics’ recent case study – Economic Impacts of “Sweet Tooth” Season One in New Zealand, a major Netflix series, produced by Warner Bros. which clearly analyses and demonstrates the upside impact; that study concluded every dollar of incentive received by the production generated $6.91 in GDP.

Screen production exists within a highly mobile and competitive global industry.  In this industry, money does matter.  Studios and film producers have choices as to their filming locations. This is a game of risk and reward, where film budgets are tightly controlled. The NZFC’s Olsberg SPI Report calculated for international productions, 93% of local expenditure can be directly attributed to the NZSPG incentive; this is a very telling finding.

Every week, we read screen sector news reports about countries changing and improving their screen incentives, and Australia has made its presence felt as a highly attractive screen production destination with their bold new policy.

How “real” is this threat and, to counter, how great is the need for our ministers to boldly step up when NZ’s screen industry is looking at a “sink or swim” future?

Within one week of the Australian budget, three international studios spoke with VCFO indicating upcoming film projects with NZ as a potential location had shifted their focus to Australia.  This reaction could not be more poignant.  At the same time, the industry here is well aware there are no major new screen productions currently in NZ’s pipeline.

Unless the NZ government moves to close our incentive rate gap with Australia (and other countries), our screen industry will be put at risk of stagnation and decline.  With well understood knock-on effects, international productions underpin and contribute to a resilient local industry, providing opportunities for our local workforce to develop their innovative and creative skills and experience, transferrable to homegrown content telling NZ stories reflecting our cultural diversity. This would suffer, and regress.

Government and Treasury will say they do not want to be in a “race to the bottom” (sic. ‘top’) with a “bidding war”, but just like tax rates, headline numbers speak volumes.  Adopting the Albanese government’s philosophy of national investment with real tangible returns to the wider economy and its people is the right approach.

How much are we talking about?  Matching Australia’s 30% rates puts NZ on an equal footing with our nearest neighbour and closest location competitor; future proofs the NZ screen incentive scheme for a great many years; and critically, accelerates the growth and success of NZ’s screen production industry at all levels, internationally and domestically.

The cost is not great by standards of other government spending; the resulting ROI is compelling.  From the NZFC 2021/22 report, $87 million was invested in international productions generating $440 million of local production spend.  If government stepped up to adopt a flat 30% incentive rate, the additional 10% government investment would be $45 million.  At a lesser flat 25% rate, the additional 5% investment would be $23 million (but also necessarily must retain the existing 5% uplift for large-scale productions).

Ministers must not myopically block for cost; a more meaningful and significant approach is the national interest.  Not only is this additional investment a rebate of what productions actually spend here, it is, more significantly, an investment generating wider productivity gains and economic growth across NZ.  Even, applying a lesser reported ROI factor of 6.0 means a 10% rebate cost increase of $45 million stimulates $270 million of GDP growth; a 5% rebate cost increase of $23 million stimulates nearly $140 million of GDP growth.

Beyond ROI economic justification, a vibrant screen sector serves our national interest richly – vitalising regional interests, our artists and creatives, innovative technology, NZ storytelling with cultural identity, diversity and resilience, and taking NZ’s brand and profile to the world.

With some irony, the threat now posed to the future of NZ’s screen industry is reminiscent of the situation triggering the Government’s successful intervention in 2013/14.  Hardened screen sector personnel will vividly recall the crisis point for the local industry when NZ incentive rates fell behind competitors (by 10%), productions to NZ dried up, the workforce diminished, and the Avatar mega production was in jeopardy of locating elsewhere.

Screen sector investment is directly within this government’s key policy themes as shown with Budget 2023’s introduced gaming sector rebate – a crisis abating measure to compete with Australia, halt the loss of our talented workforce, and to lift the creative economy.

Dabbling policy will not make NZ competitive and more attractive to screen production.  Failure to be tangibly bold seriously risks putting NZ’s screen industry into decline.  More is needed; this more is an increase in the incentive rate settings after nearly 10 years pay-back with screen industry success and substantial economic spin-off.

This really is a sink or swim” policy choice by ministers Sepuloni and Edmonds.

VCFO Contacts:

Andy Archer, Director, Screen Industry & Taxation – andy@vcfo.co.nz; Mob: +64 274899052

Phil Gore, Director, Screen Industry / Entertainment – phil@vcfo.co.nz; Mob: +64 212354707