Great stuff for Fox but what do Kiwi taxpayers get back for their investments in a blockbuster?

A bloke called Luke Malpass raises a bloody good question in the Sunday Star-Times today: it’s whether taxpayers should be pumping money into our film industry.

Malpass is a Policy Analyst at The Centre for Independent Studies.

His question is something that Alf tried to bring up with Gerry Brownlee, our Minister of Economic Development. He didn’t get far.

The question was triggered for Malpass by news that the film Avatar had overtaken Titanic to become the highest grossing movie in history by raking in about $US2 billion.

He quotes the makers of the film as saying the only reason they chose to film in Aotearoa was because of the $45m subsidy provided by the New Zealand government.

Aotearoa? Did the buggers really say they made the film in Aotearoa for that reason? Or in New Zealand?

But Alf digresses. Let’s get back to Malpass’s analysis.

This grant was reasonable, we are told, because without it, the film would not have been shot in New Zealand and, consequently, not brought in $307m to the economy for the relatively light price tag of $45m. Not only that, it provided employment, encouraged New Zealand tourism, and increased the standing of New Zealand’s film industry worldwide.

Taken at face value, these seem like good reasons to support the film industry. However, like virtually all industry assistance schemes, the feel-good factor outweighs any economic benefit.

Malpass reminds us that picking winners, such as the film industry, is nothing new for New Zealand. He acknowledges there is a sense of national pride that goes with it but –

In reality, it brings few quantifiable benefits and is fundamentally unfair to the majority of industries that don’t get assistance and the taxpayer who foots the bill.

Malpass runs us through the arguments.

For starters, there is a basic equity issue. Gerry Brownlee will cite all the money the scheme has brought into New Zealand.

Apparently, for all the subsidies to the film industry, the taxpayer has spent $189m for expenditure in the economy of $1.4b.

But this misses the point. Expenditure does not equal an economic benefit and so the government has made a trade-off over where cash will be spent – it could have spent the $189m on education and health or anything else the average taxpayer would benefit from.

So what makes a particular industry more worthy for assistance than others?

Tom Greally of Weta Digital, the New Zealand visual effects company, says it employed up to 900 people at the peak of Avatar’s production. Averaging that figure out shows that each of the Avatar jobs cost the taxpayer at least $50,000.

Regardless of how good Weta’s work is (and it is excellent), there is no principled argument to be made for taxpayers subsidising jobs in the film industry and paying film industry salaries, as opposed to any other. Why are those involved in film-making more deserving than those at a forestry mill that might close? Or a rural hospital that could be kept open?

It is an inequitable situation.

Then there’s the argument about the subsidy being needed to compete, because other countries such as Australia, and most US states, subsidise films being made there.

This is true, but recent research from the US-based Tax Foundation suggests that an “arms race of incentives” is developing between competing film locations (especially in the United States), with dubious claims about economic benefits. And in any case, just because subsidies will get films made here is no argument for why one should be made here.

Malpass then examines the arguments about opportunity cost. Any resource used for one thing is an opportunity foregone to use it for another.

So what if New Zealand misses out on a few films produced here because it doesn’t give subsidies to the industry?

Those resources will be used elsewhere in the economy – perhaps for something more profitable or sustainable. An international “race to the bottom” will result only in a higher price to “buy” films and a greater opportunity cost for each one bought.

This is why Brownlee is missing the point when he claims the subsidy is a good idea and that it has helped New Zealand tourism.

Even in cases where New Zealand scenery is showcased (one would imagine Avatar would increase tourism only to Pandora, its mythical planet), the “encourages tourism” argument is a bit disingenuous. Sure, it might encourage tourism (although, Lord of the Rings aside, reliable evidence for this is scant), but it does so at the opportunity cost of resources being employed in other economic activities.

In the upshot, as Malpass points out, the New Zealand Government has given $45m to the highest-grossing movie of all time “and this represents a direct wealth transfer from the people of New Zealand to Fox Studios.”

It’s reasonable to suppose film director Peter Jackson has done all right from the subsidy over the years, too.

According to the NBR’s Rich List, Peter Jackson’s pile was estimated at $450m.

Wonder what he thinks of the arguments about taxpayers contributing to movie-making.

Oh, and Alf – like Malpass – has been applying his rigorous analytical skills to examining the worth of the subsidies. He concluded the policy was a crock unless the country’s film industry was headquartered in Eketahuna.

Alas, at that time Gerry was somewhat preoccupied with how he could persuade the public to go along with mining the conservation estate. He told Alf to come back when he wasn’t so busy. In 2012 perhaps.

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