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 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. credits, grants, cash rebates, and sales taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. exemptions, 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 taxpayer 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.
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