The government keeps film subsidies on

Subsidies and special deals for favoured firms/industries seem to have been becoming increasingly common in New Zealand.  There is Tiwai Point, the Sky City convention centre, the forestry industry, the export education industry and probably others I’ve forgotten.   There are the R&D tax credits the Prime Minister touts at every turn –  the only substantive item in her (very short) list of things the government is doing to reverse the atrocious productivity performance.

And then there is the film industry, into which many hundreds of millions of dollars have been poured over the last couple of decades.  There is an industry there, but one which official advice to the government makes clear has no prospect of viability without heavy subsidies.  That should be a good test as to whether there is any robust case for the subsidy.  Barring something like national defence considerations, any industry that has no credible prospect of ever standing on its own feet without subsidies or protection should be allowed to left to itself, probably to wither and die, but just possibly to transform itself.  And given the skewed incentives facing ministers, officials, and those in the industry – when such interventions are launched and when they are later evaluated – the standard of proof even for transitional assistance should be very high indeed.  It rarely is, of course.

This is another of those areas where there seems to be no discernible difference between National-led and Labour-led governments (and going by his comments in the last few days it isn’t even clear that the ACT Party is much different).

The current government showed some initial interest in looking to pull back on these taxpayer subsidies.  But, so we learned over the weekend, having had a look, they’ve backed away, and the party of workers, of the low income and disadvantaged, is going to keep right on with the big production subsidies.

The government has abandoned plans to rein in ballooning subsides for Hollywood, citing film industry opposition and the threat of lawsuits from the producers of James Cameron’s Avatar films.

But yesterday Parker, speaking from Australia, said following consultations with industry around the viability of their business – and thousands of accompanying jobs – without subsidies, and legal advice over a 2013 deal signed with Avatar producers, said cuts or changes to the subsidy scheme were now off the table.

“We’re not proposing to introduce a cap. We accept that the subsides are necessary, and we accept there’s a benefit to the country,” he said.

and

Parker said he wasn’t entirely dismissing the criticism by officials but said international rivals for film work were also offering subsidies.

“There’s something in that, but it’s also true that you have to balance that with whether you want to have a major industry. It’s a binary decision here – you either have this subsidy, or you don’t have an industry.”

“You’d be a foolish government to allow the film industry to fail, you might never get it back,” he said.

Now quite possibly they were on the hook over the Avatar deal, but that isn’t an argument for keeping the whole scheme in place (even if it might require a specific carve-out that respects the terms of a specific deal the previous government signed with the Avatar people).

Various official papers are linked to in those articles (notably these), which make it pretty clear that even MBIE’s hired-gun economic consultants were reluctant to attempt to put a number on the alleged economic benefit of the film subsidies, and other consultants hired to peer review the estimates the first ones eventually came up with were less than convinced by the results.  The Treasury estimated that net economic benefits were negative –  which is pretty much what one would expect when such large subsidies are required to keep the industry in business, and those funds have to coercively raised from other taxpayers.

But, notwithstanding all this, the Minister is convinced there is a benefit.  It would be nice to see his analysis.  Something for example about why, in a sector in which other countries’ taxpayers are wasting their money on subsidies, we should even be participating in such bidding wars.  And about why and how subsidising/protecting the film industry is so very different from all the other protected/subsidied industries we once had in New Zealand, that were in time forced to either stand on their own feet, or die.  And which, while they lasted, detracted from New Zealand’s overall economic performance, part of the decades-long story of declining relative productivity.

There are attempts at more sophisticated analysis in various reports MBIE and other agencies have commissioned (including this piece from last year by NZIER).  But I just had a quick look at a few summary indicators I could find.  Here, for example, is a line from a detailed table of New Zealand services exports (June years, $m)

2014 2015 2016 2017
Audiovisual and related services 504 490 397 280

Not exactly the trend enthusiasts would have been looking for.

The NZIER report has a chart of the estimated contribution of the screen industry to GDP over this decade.  In 2010 the estimate was 0.46% of GDP and in 2015 (the most recent year) 0.41 per cent of GDP.

In the annual SNZ release of screen industry data there is a table of earnings from screen industry jobs.  Here are those earnings shown relative to GDP.

screen industry jobs

On this measure, the relative share of the industry is a bit smaller than it was in 2005, despite all those subsidies.

There is also a similar length series of (a) the number of people employed, and (b) the number of jobs, which I’ve shown relative to the HLFS data on total employment.

screen E

And here is the same breakdown in respect of the number of jobs shown relative to the QES jobs filled data.

screen e 2

Employment isn’t everything –  there just might be stellar productivity growth going on.  But what NZIER could find on that front wasn’t particularly impressive –  and as they note, the numbers are shaky at best.  And in a sector of this sort, where New Zealand is a small part of a global industry, if there were really stellar productivity gains being achieved one might expect them to show up in a growing market shares, including (for example) rapidly rising exports and a rising share of total employment.  There is simply no sign of any of that.

Advocates seem reduced to some pretty feeble arguments not much different from “it feels good”.  In their taxpayer-funded report, NZIER devoted several pages to trying to make the claim that film subsidies are an effective part of “soft diplomacy”, exemplified apparently by cases like these

The German-aired Emilie Richards series (case study 6 over the page) is not well known in New Zealand, but in Germany it played a role in cross-cultural understanding. In the case of 800 Words (case study 7 overleaf), our Trans-Tasman relationship plays out in a drama series featuring New Zealanders and Australians together in daily life.

But as the discussion of these two cases unfolds it all seemed to reduce to not much more than “if you subsidise something, you will get –  and may even grow –  some firms and jobs that depend wholly on those subsidies”.  That is no sort of robust test.

Film subsidies look like a classic case in which, once established, it is extremely difficult to overcome the concentrated vested interests that want the subsidy to continue, even if there is no sign that New Zealanders as a whole are benefiting.  Perhaps there is a better class of cafe in Miramar as a result, perhaps ministers like hobnobbing with film industry people (although given the revelations of the MeToo movement it is hard to know why), and there are (of course) individual employees who would be adversely affected by the discontinuation of the subsidies –  as there is in any economic change, including the cyclical ups and downs in places like the construction industry.  But it isn’t a good basis for taking your money and mine to provide subsidies to the likes of Richard Taylor and Peter Jackson, talented as they (and their staff) may individually be.   Economic policy should be premised on considerations like economic efficiency, with any interventions benchmarked against credible performance data.  On that score, film subsidies were flawed from inception, and they clearly fail now.

27 thoughts on “The government keeps film subsidies on

  1. I’m not a fan of most of the movies made in NZ today, or for that matter most movies made anywhere. But that aside, could an argument be made that for a small, obscure South Pacific nation the exposure movies provide us is somehow a soft, side benefit of this industry? I have no idea how this could be measured, but that’d be your job Mr. Reddell. What say ye?

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    • (intended more as a reply to your second comment below)
      I find it difficult to believe there is no gross benefit from the subset of movies that are (a) successful, and (b) feature NZ scenery extensively. Even the net benefit from those specific movies might be real. I’ve never seen an Avatar movie, but I can’t imagine those movies do anything to attract people to visit NZ. And of course many movies doin’t do that well at all. Even on the Hobbit/LOR movies and the increase in the numbers visiting “Hobbiton” I’m not aware of how much of that is tourism diversion (people would have come to NZ anyway and go to Matamata rather than somewhere else) and how much is net addition.

      It isn’t inconceivable that there could be material net benefits, altho I suspect diminishing marginal returns would set in pretty quickly. The 10th spectacular NZ scenery movie probably won’t get many more visitors, and will still have cost a lot of money.

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      • Try the latest “Mission Impossible 6” movie with Tom Cruise – sure as heck wont be bringing any visitors

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      • Thanks for your thoughts, and you’re very likely correct. However it’d still be interesting for some wonk to devise a way to measure whatever benefits there are. As you’ve probably noticed, the decision to fine people who refuse to open their phones to requests by NZ customs isn’t getting good press, but of course, this might only last a news cycle or two.

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      • You forget to mention the billion dollar subsidies for disease control for the Dairy industry and kiwifruit so far. Add to that the cost of border control on behalf of the agriculture industries in general.

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      • The Power Ranges is not a high profile movie but it’s continuous use of NZ scenery does and is weekly screened on Japan’s prime time TV does remind Japanese regularly to visit NZ.

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  2. The simple value test

    Searched the NZIER document for the total annual cost of the subsidies for the years export benefits given

    Nothing

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  3. It’s political strategy isn’t it. The film industry comes with gloss and glamour, everyone seems to want to be part of it, and there is enormous pride among Kiwis that “we” made Lord of Rings, etc and Jackson is now a bit of a hero. Look at the rather weak public condemnation of Key, his secret talks with Warners Bros (smuggled in in a limo to Premier House for talks) and a law change to make it easier for the studio to push workers around. Lies were told but no-one seemed to care.
    Kiwis are of the belief that movie makings does wonders for the country. That’s how powerfuo the movie marketing is – just like Uber and AirBNB. These big corporation know how to trick and treat the masses. As you say a govt would find it hard to get rid of the subsidies now. Potentially that would leave a big crater behind – as someone else mentioned this week.
    We are a strange little country – I constantly meet people who say private enterprise has made us, yet so much of private enterprise is actually subidised or contracted to government work that was previously done by govt departments.
    Gordon Campbell had some views on the industry on RNZ this week – he’s been following it for decades.(Jesse Mulligan 1 October)

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    • I’ve lived in Manhattan for forty years, anecdotally I can report that people I meet know that the LOR series used NZ scenery and are fascinated by it and aspire to visit. I admit, I have no idea how to measure if this results in a net gain of visitors to NZ. But I’d find it difficult to believe there’s zero net benefit.

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      • John Key nominated himself as the tourism minister and he pushed through the film subsidies under a John key led government. Our tourism and international industry is a $17 billion juggernaught planned, executed and delivered by the John Key National led government. Likely learned from his stint in Singapore heading up Lehman Brothers Asia regional office in Singapore.

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      • Exports of services, as a share of GDP, were smaller last year than in 2007, the last pre-recession year (and also the year before Key took office).

        Pretty sure it was Merrill Lynch Key worked for in Singapore.

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      • Our John key $450 million Skycity convention centre demand to renew Skycity’s gambling licence pales in comparison to Singapore’s demand of $7 billion infrastructure spending to issue Singapore’s gambling licences.

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      • Your statement as a share of GDP continues to be rather misleading. The export GDP spend in tourism and international students can never increase as a share of GDP because the flow on to domestic GDP is in several multiples. Your analysis is seriously flawed.

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  4. As you say, the subsidies to the screen industry are just one factor. The last government was quite tough on “welfare” for New Zealanders but seemed to be quite willing to provide it to foreigners whether film directors, yachtsmen or Banks gouging their customers.

    We need a government that understands that a free market isn’t necessarily a competitive market and one that is quite prepared to step in to drive competition and also to step out when it comes to corporate welfare. I don’t see that happening with either side of the isle. Both seem quite happy to cozy up to big business interests.

    I’ve not done the numbers but I am pretty confident New Zealanders would have been better off without the ongoing subsidisation of Tiwai Point, the Sky City convention centre, the weird bailing out of SC finance, the Americas cup and the movie industry.

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    • I’ll make a partial exception for SCF (and the rest of the guarantee), but perhaps that is only because I was involved, and was championing the guarantee (altho not on the terms Cullen did it) at the time. I’ll make the case in a post next week for the 10th anniversary of the guarantee scheme.

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  5. Michael, it would be interesting to see is a table of the biggest subsidies in NZ (preferably net subsidies if anyone has done the analysis). Is there anything available?

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      • Thanks, that’s interesting. The report deals with direct subsidies.
        There are also indirect subsidies/costs where, say, externalities such as traffic congestion are not paid for (financially) by user (they do pay through congestion itself).
        It would also be interesting to see these tabled to see where the major distortions in the economy lie.

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      • Possibly TU could for interest add in the various Working for Families packages which a cynic might say enables employers to pay lower than reservation wages?

        “Boosting family incomes
        We’re expanding Working for Families, making it available to more people all around the country.
        Working for Families provides extra financial support to thousands of New Zealand families, making it easier for Kiwis to work and raise a family.”

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    • Number 1 on the list would be Dairy industry at $1 billion for culling cows.
      Number 2 would be $1 billion tree planting to offset agricultural industry carbon emissions.
      Number 3 on the list is $500 million for the kiwi fruit industry for disease control

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  6. I think you had the correct idea when you mentioned hobnobbing with so called celebrities. Politicians these days are using social media as much as possible. The red carpet brigade are among the best at self promotion. For politicians to get the chance for a photo op with such promoted people and seen at their events is the holy grail. That they need to spend taxpayers money is of little consequence compared to the free (to them) publicity.

    As for accepting the threat of legal action as a reason to roll over, wow. Just further proof that it is decades since we have had leaders that consider their responsibility to Kiwi should be the priority.

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