When is a subsidy not a subsidy? When it's yours

Just to add to the stress of Christmas, your correspondent unwisely entered into a social media debate in which he was variously described as a "dickhead" and "deluded" for damning the latest film industry sweeteners with the dirty word "subsidy".

Other words meaning the same thing, like "rebate" and "incentive," are preferred. This is standard politics.

The Government, for example, called its $30 million subsidy to the Tiwai Point aluminium smelter an "incentive payment".

That payment helped ensure the major Southland employer remains open at least until 2017 and hopefully much longer.

Labour called that arrangement "corporate welfare", as it did the deal with Warner Brothers to get The Hobbit made here.

But the party welcomed the latest assistance for the film industry, presumably on the basis that it is equal opportunity corporate welfare. Any film production - not just those involving hobbits - can get a look-in.

The Treasury, always ones to look at a warm-blooded issue coldly, argued against the Tiwai Point payment, the SkyCity convention centre deal - a different sort of corporate welfare - and, of course, against the latest film industry concessions.

The official bean-counter's analysis shows that foregoing tax revenue on film production - around $400m in the case of the Lord of the Rings a decade ago - has shown "small economic benefits".

The Large Budget Screen Production Grant delivered a positive net economic benefit of $13.6m over seven years between 2004 and 2011.

That's a return of less than 1 per cent over seven years, although it does show that supporting film didn't actually cost the country money, unlike unlamented agricultural and manufacturing subsidies of the past.

Film has also delivered a lot of highly paid jobs, tourism spin-offs and a huge dose of national pride.

Would throwing the same dollops of dosh into tourism marketing have achieved the same results for the tourism industry? Who knows?

Would a global tourism campaign have infused New Zealanders with such enthusiasm and inspiration? Almost certainly not.

As New Zealand seeks a niche in higher-value, technology-based industries, no one really wants to hear the inescapable analysis that says the film industry is a global Dutch auction that we'll struggle to win.

"Other jurisdictions are offering large subsidies to attract films and further New Zealand subsidies will simply add to this cycle and future demands for larger subsidies," the Treasury observed. "Permanently matching overseas subsidies to generate activity in New Zealand is not a sound basis for economic development policy."


The new system operates as a rebate system. If a production is large and locally produced enough, it will now be able to claim back up to 25 per cent of its costs. That figure used to be 15 per cent.

Reduced to absurdity, that trend suggests New Zealand might eventually expect to pay the full cost of movies being made here.

The European Union's fiscally ruinous system of paying farmers not to grow certain crops does exactly that. It didn't set out to achieve that outcome, but the lesson of history is that subsidies are the economic equivalent of a road to hell paved with good intentions.

Of course, you can't move a French farm to Ireland as easily as you can a film project from New Zealand to just about anywhere.

On top of that, supporting film is hugely politically popular in a way that no other industry can match.

And at the same time, the ideological rigidity in New Zealand policy-making that eschewed subsidies and corporate welfare from the mid-1980s onwards has been steadily breaking down over the past decade.

The notion that capital would be released to better uses was correct, except that there was no obligation to reinvest that capital in this country.

As in most developed economies, New Zealand's politicians are casting about for new, more pragmatic models of government support for local economic development.

The National-led administration has shown a marked tendency to "pick winners", once a byword for "evil-doing".

The signs are that a Labour-Green Government would do the same.

The tide will turn only when some critical threshold is reached and, like the Australian car industry, the country simply can't afford to do more. That moment of truth is probably a long way off for the film industry, but it will come unless something changes to make quality of execution, workforce and ideas more powerful than politically inspired sweeteners.

That change could happen, since the global film industry's current crisis both of profitability and creativity suggests it is inherently unsustainable in its current form.

In the meantime, however, film is undeniably a special case, and whether or not that's a good thing is irrelevant. It's simply a fact and, for now, we've secured our bit part in one of the most glamorous businesses around.

We might as well enjoy it while it lasts, but use the opportunity to build a depth and competitiveness in skills, infrastructure, ideas and story-telling that can outlast the hand-outs, for the day when the music stops. BusinessDesk