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Avatar Receives $44.7 Million from New Zealand

By: Mark Robyn

The press in New Zealand has been reporting that the international hit film Avatar received $44.7 million in film production grants from Film New Zealand, the charitable trust responsible for handling the county’s film incentive program. Film incentives for production companies, which can include tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s, grants, cash rebates, and sales tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the IRS, preventing them from having to pay income tax. s, have become popular with state lawmakers in the US and the trend is starting to spread around the world. Governments are taking a gamble with taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payer money in hopes that they will strike it rich with multi-billion dollar sensations like Avatar. But for every Avatar there are hundreds or thousands or flops.

One of the key arguments against film tax credits is that they represent a “race to the bottom,” with governments forced to continually outbid one another in order to gain or retain film productions. Unfortunately, the price only continues to increase as production companies have learned to leverage governments against one another to maximize their profit.

Film New Zealand chief executive Sue Thompson has an interesting quote in this article from the Dominion Post in New Zealand:

[Thompson] says $189.4m has been paid out under the [film incentive] scheme… since the grants were introduced in 2003 and their importance could not be underestimated. “Having said that, trying to compete with increases in grants or rebates by other countries is largely viewed as a downward spiral, and we have never sold New Zealand as a cheap location.”

She is acknowledging the race to the bottom, but apparently does not think it is a problem. What will they do when major international competitors like Canada, South Korea, and Singapore outbid them?

Read more on film incentives in our recent report Movie Production Incentives: Blockbuster Support for Lackluster Policy.