Our hobbit legacy comes at a price
As OECD nations near an agreement to force the United States tech giants to pay more tax, it emerged that New Zealand has agreed to hand one of Silicon Valley’s biggest companies a considerable amount of taxpayers’ money.
The Government’s deal to support Amazon with up to $160 million in subsidies to film its new Lord of the Rings television series has raised eyebrows around the world. The sizeable handout will enable the tech titan to recoup a significant amount if it spends a planned $650m on the show’s first series.
Amazon’s show, billed as the most expensive ever made, is eligible for a 20 per cent rebate on any money spent here, plus a 5 per cent sweetener for being a large production with ‘‘significant economic benefits’’. The incentive structure for TV and movie shoots has been in place since 2014 but never used for such a large, and potentially lengthy production (the show is set to span five seasons).
Investigative reporting from Stuff revealed the level of public sector anxiety about missing out on the series. Official documents revealed Tourism NZ feared the country could lose its tag as ‘‘the home of Middle Earth’’, and warned a shoot in a rival location could see New Zealand’s hobbit legacy ‘‘taper off’’.
New Zealand, a highly desirable filming location, underplays its hand when offering this additional 5 per cent provision. In 2019, the new Lord of the Rings producers said they chose Aotearoa for its ‘‘pristine coasts, forests and mountains’’.
Is there another beautiful country synonymous with The Lord of the Rings, with established filming locations linked to the story? Did New Zealand really need to bend so far backwards when completing the deal in December, 2019?
Despite the hefty cost, Stuart Nash, the minister for economic development and tourism, hailed the Amazon tie-up, which he said would bring a multi-year benefit to New Zealand.
Nash is right that the deal will probably boost tourist numbers when the series airs. Perhaps people unfamiliar with the Peter Jackson movies. The agreement also promises some slightly vaguer benefits; Amazon is set to ‘‘build a wider relationship’’ with New Zealand and has vowed to look for ‘‘opportunities’’ here.
Yet there are concerns that the size and scope of this deal, and the uncapped nature of New Zealand’s film subsidy scheme, presents further risks down the line. Could the film subsidy programme spiral out of control? Significantly beyond its intended budget, has it already?
National’s economic development spokesman Todd McClay cautiously welcomed the Amazon deal but voiced concerns that other producers could demand the same red carpet treatment as the tech giant, potentially leading to a ‘‘bidding war’’ as studios try to squeeze the state for a 5 per cent boost.
Economists believe the scale of the deal could have consequences for future productions. Graham Brownlow, of Queen’s University Belfast, who has studied the impact of blockbuster TV productions such as Game of Thrones on the UK, believes the Amazon agreement could trigger more aggressive competition for future shoots.
Brownlow believes there’s a danger that taxpayers could end up competing in auction processes to offer ‘‘an ever more generous set of tax subsidy or spending bundles’’ to keep the film studios in business.
In general, economists are divided on whether the subsidies generate a considerable net benefit, and past analysis on New Zealand’s model appears inconclusive.
The new Amazon deal is positioned as something that will boost not only tourism but also bring Amazon’s tech know-how to New Zealand. The company’s agreement with the Government suggests the tech giant will bring research and development technology and high-tech filming and costume design skills to the country.
The Lord of the Rings isn’t any ordinary production, and this isn’t any ordinary subsidy. The Government has raised the bar with its support for Amazon, potentially sparking more intense competition for future prestige productions when they come up for grabs.
Film and TV subsidies look like they are headed in one direction, so how long can New Zealand afford to play this game?
Amid a clamour for the glamour of big TV and movie shoots, governments could be drawn into making even more concessions to studios as competition reaches new heights and productions become increasingly expensive. With $1 billion in film and TV subsidies set to be handed out by New Zealand over the next five years, let’s hope the significant fiscal risk from being the world’s movie set is worth it in the long run.