World Cinema: Give me a (tax) break

In our latest World Cinema column, we take a look at how tax breaks affect the movie industry, and how they kept The Hobbit in New Zealand...

Stop the press. The once peaceful and pleasant country of New Zealand is a land on the brink of disaster. They’re protesting in the streets! The Prime Minister has been forced to issue an emergency statement! And what about? Ah yes, the fact that The Hobbit might not be filmed there.

For those unfamiliar with the story, an acting union’s threatened (but now resolved) boycott has led Warner Bros. to consider alternatives for their filming locations, citing the fact that the country can not be considered a stable environment for the production. In turn, this led to the protests and the intervention of Prime Minister John Key, who entered into talks with Warner.

As you can see from yesterday’s story here, this appears to have been resolved, with an extra bumper bonus of cash and several labour laws looking likely to be changed in the studio’s favour.

Many felt, and with a large degree of prescience following the resolution, that the real reason Warner was threatening to leave was over the issue of tax breaks, the financial incentive many countries offer in order to attract filmmaking business to their shores.

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Make no mistake, having a big budget blockbuster shot on your doorstep is a big money deal. Reports suggest that The Hobbit alone is worth potentially $1.5 billion to New Zealand. With the country dealing with its worst recession in 30 years, a national brain drain of promising young professionals, and a standard of living ranked at almost 15% lower than other developed countries (as ranked by the OECD based on per capita gross domestic product) this is a massive amount of money and a massive boost for the economy.

But Key, the ex-global head of Merrill Lynch and Co.’s Foreign Exchange in London, has said he will not be drawn into a ‘bidding war’ over the tax breaks. The current subsidies on offer apparently run to about $50 million, and while Key is open to extending these and other ideas to entice Warner Bros., it is important to remember that only in 2002 there were no tax breaks on offer, after a decision two years earlier to abolish them.

The government at the time decided (perhaps quite rightly and with some foresight) that “There are lots of different ways of providing assistance which do not expose us to the very large risks that some artificial forms of financing through the tax system can imply.” However, protests from director Peter Jackson and Weta supremo Richard Taylor helped put paid to this, with Taylor stating, “If they are out there looking for somewhere affordable and beautiful to film, and Australia is offering tax breaks, I have no doubt where they will go.”

In the end, patriotism and the lure of Hollywood won out, and it seems that they have again, but with both sides saving face. Key gives concessions to Warner Bros. over extra money, but without being seen to hand over an excessive amount, while the studio gets ‘clarification’ on the employment status of film industry workers, presumably to make sure they get the ‘stability’ they were concerned about. Power to the people, I guess.

Concentrating purely on the financial side of things, are the tax breaks necessary? After chatting to my New Zealand friend (part of that aforementioned brain drain!), I was reliably informed that the New Zealand Film Commission was set up by the government (back in 1978) “to basically encourage, and assist in the making, promotion, distribution and exhibition of films in New Zealand”.

Essentially, they put up the money, help train the filmmakers and then assist in the marketing and release of these films. They are not, however, involved in the production of the content. That pretty much sounds like one of the sweetest deals going.

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The commission has an annual budget of $12.7 million, and through this it aims to invest in four larger budget productions, four small budget features, and seven short films every year. Its success in promoting a home-grown film industry is such that, in its 32 years, there have been over 200 feature films, compared with the meagre 20 in the preceding 30 years.

However, how many of these films can you name? Whale Rider. Once Were Warriors and probably Eagle Vs. Shark are as far as most people would get. Which is a real shame, as the lack of breakthrough mainstream New Zealand hits means that the commission’s reach is seemingly, sadly, somewhat limited.

It is a system which has done more to benefit its home industry than any attempt in this country had managed, despite the larger resources at the now defunct Film Council’s disposal (an estimated $24 million, so double the budget), but it appears, to attract the top talent to the country, you have to get noticed, and only Hollywood seems to have that global pull for many countries.

So, enter the tax breaks. The government subsidises a big production and suddenly everyone wants to come and play. Everyone being the Hollywood studios, in this case.

New Zealand is in no way the only country to offer these tax breaks to filmmakers. In fact, the practice is so widespread that studios regard them as part of a film’s budget.

The UK alone offers breaks of up to £110 million a year, and this is defended by claims that it boosts the economy by up to £4.6 billion (of the UK’s gross domestic product), which, by anyone’s reckoning, is a pretty big amount. This type of money on offer to studios, coupled with the weak pound, means that making films over here is up to 40% cheaper than filming in the US.

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Australia offers a 40% refundable tax offset for movies filmed there, but often these breaks come with clauses, usually involving hiring a certain number of local workers etc.

Germany, however, has none of these, and as well as offering the usual financial incentives, it, in fact, has insane tax laws, which means that, as long as a film doesn’t turn a profit, then investors can avoid paying tax on it. (Step right up, Uwe Boll.)

So, suddenly New Zealand looks (almost) principled in its stand to not offer too many millions more to Hollywood. The fine print of the deal still has to be worked out (in Warner’s favour) for The Hobbit to be filmed there, but it is a measure of the business over art nature of the industry that these financial issues now constitute the major public factor in where a movie is shot…

In Cinemas

Out Of The Ashes

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It’s two weeks in a row for ‘redemptive power of sport’ movies. Following the release last week of Africa United comes this documentary about the Afghan cricket team trying to qualify for the 2011 World Cup. Attempting to showcase a country far different from its image on the news, while also making clear the uphill struggle they and everyone there faces, this originally previewed at the Edinburgh Film Festival

The Hunter

On a different note, is this Iranian film from actor/director Rafi Pitts. Pitts portrays a man left with very little after a stint inside prison, and who is kept apart from his girlfriend and child. He takes to hunting, in an attempt to escape from the political pressure of Tehran, but is drawn into the battle between the insurgents and the authorities, with deadly consequences. It is an unremittingly bleak film which has drawn both praise and anger at its lack of hard answers to the questions it poses, and the atmosphere of claustrophobia it paints of modern day Iran is difficult to come to terms with.