Point of Order: Aucklanders fund expansion of the screen industry

Aucklanders will be chuffed to learn the film studios they own as ratepayers are to be given a share of the millions of dollars the government is eager to pour into the film industry.

Mind you, they mightn’t be so chuffed to learn they will be financing the expansion  of the studios as taxpayers and as ratepayers.

Auckland Film Studios, in West Auckland, has received funding for a major expansion through the Government’s Infrastructure Reference Group’s (IRG) COVID-19 Response Fund.

The Government is investing $30 million of a total $35 million project to construct two 2,000sqm sound stages and development of further workshops and offices, to expand capacity at the Auckland Council-owned studios in Henderson.

The project will be undertaken by Auckland Unlimited Limited, the region’s economic development agency, with co-funding provided by Auckland Council.

Social Development and Employment Minister had the privilege of joining Economic and Regional Development Minister Stuart Nash in making the announcement and providing the rationale:

“Our screen industry employs around 16,200 people and contributes $3.3b to GDP per year,” she said… 

And:

“This development will see a material increase in the number of purpose-built sound stages available in New Zealand and increase our capacity to produce more content for domestic and international audiences.

“It is also a significant investment for Henderson and the wider Auckland region, creating more employment opportunities in the area. This includes 100 initial construction jobs, as well as up to 300 new jobs in the screen sector when the stages are completed next year.

“It will also provide more creative opportunities for New Zealanders in the film and television industries which will help them realise their potential here at home,” Carmel Sepuloni said.

She thus joined the cast of government politicians of all stripes whose critical faculties perhaps become bedazzled by the floodlights when the question of propping up movie moguls as well as smaller film makers is examined.

The  government pays out millions of dollars in subsidies to the screen industry every year.  The question is whether this money should be spent elsewhere.

In February last year, Matt Nippert in the NZ Herald revealed that Sir Peter Jackson’s Wellington-based Weta Group was receiving more than $40 million of the annual sum.

The Government insists this spending is beneficial to New Zealand, especially for the country’s tourism industry.

New Zealand Initiative economist Eric Crampton challenged this:

“What we’re not seeing are the other industries that might be here employing people instead if we didn’t have massive subsidies going into the film sector and diverting people into those areas,” Mr Crampton told TVNZ 1’s Breakfast.

“It’s hard to imagine any industry in the country that wouldn’t argue that if they could just get a 20 per cent rebate on everything that they spend in the country with opportunity for another five per cent back if they can show that there is enough benefit to New Zealand – every industry would love to have that kind of arrangement,” he says.

“It just feels a bit odd that we’re giving, according to Nippert’s findings, as much money to Weta Workshop as were giving to Radio New Zealand a public broadcaster,” he says.

Crampton said around $170 million was spent in subsidies to international films.

He noted that other industries are affected because they can’t get the people they need in the right jobs.

He cited the video game industry, which had been complaining it couldn’t get workers “because they’re all being sucked in to video animation in the subsidised film industry,”

The PM – of course – disagreed.

But if the TV One report gave a full account of everything she told them on the subject, her support for the subsidies is rooted in belief and on hearsay:

She says she believes the flow on affect of the film sector is worth it for New Zealand. 

“You ask anyone who works in the industry whether or not it makes a difference… the flow on affect is huge,” the Prime Minister said today.

“The film industry is completely unique.”

A few months later, Stuff alerted its readers to a Treasury warning that New Zealand taxpayers must fork out $1 billion in subsidies to the film industry in the next five years  – money the Government will have to find by ratcheting down new spending in other departments.

Despite these eye-watering costs, Finance Minister Grant Robertson is happy with the scheme, saying it’s the cost of having a film industry.

A large portion of the subsidising would ease the cost of the Lord of the Rings TV adaptation, made by Amazon Studios, which is owned by Jeff Bezos, the world’s second richest person.

The author of the Stuff, report, Thomas Coughlan, noted:

This massive cost is because the subsidy scheme is uncapped, meaning there’s no limit on the amount of money the Government would have to hand over.

He referenced a repetition of Treasury’s warning in the Government’s December forecasts in 2020, although again no specific sum was mentioned.

And he mentioned the answer to a Written Parliamentary Question from ACT deputy leader Brooke van Velden from Economic Development Minister Stuart Nash, who acknowledged Treasury was forecasting the Government to be on the hook for $1 billion dollars from 2021 to 2025, “or an average of $200 million per annum”.

“This fiscal forecast includes an estimate of expenditure based on known productions including the Lord of the Rings television series and Avatar sequels,” Nash said.

It was also expected to attract an estimated $4.4b of international production spend into the New Zealand economy.

Coughlan reported that the subsidies have run massively over the budget envisaged just a few years earlier.

In 2017 the scheme was given $55m a year for the years 2017-2021. But by 2019, the scheme already required topping up. An extra $155m was approved for the rest of that year – and a further $206m was approved in the 2020 Budget.

Nash said the scheme had baseline funding of $50.6m a year going forward.

But every dollar above that must drain new budgets.

This means that each year Robertson will have to find about $150m extra for the scheme and each dollar will have to come at the cost of increasing spending somewhere else.

These trade-offs will be significant; In the 2020 Budget, all new spending in the Education portfolio totalled $165.2m.

Film subsidies, however, were given $185m for the same year – $140m for films from overseas companies, and $45m for local productions.

Robertson said he was comfortable with the pressures and trade-offs that the subsidy required him to make.

“Once you’re into the game of film subsidies you have to be in it – the rest of the world is in it and if you want a film industry this is part of the price you pay.”

Earlier this year, the public learned of the government sweetening its deal with  Amazon for filming the Lord of the Rings TV series in New Zealand.

Under a Memorandum of Understanding Amazon will get an extra 5 percent from the Screen Production Grant in addition to the 20 percent grant the production already qualifies for.

Amazon plans to spend about $650 million on season one of the show meaning it would be eligible for a rebate of over $160m.

 Auckland will soon be better able to bid for  a slice of the action.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton.