Our $500m 'gift' to Hollywood

Avatar received a grant of $44.7 million. Photo / Supplied

New Zealand taxpayers have spent more than half a billion dollars over the past decade subsidising Hollywood movies and TV series, a Herald investigation reveals.

The figure includes more than $220 million in rebates, paid from a fund for big-budget productions, as well as tax breaks claimed by movie companies.

The Labour Government introduced the Large Budget Screen Production Grant in 2003, hoping it would stem the flow of hundreds of millions of dollars being claimed in tax losses for Hollywood productions.

Inland Revenue has calculated that hugely successful films such as the Lord of the Rings trilogy cost taxpayers about $300 million in tax breaks at the beginning of the decade.

Since then, at least another $220 million has been handed back to production companies in the form of rebates on expenditure.

Another $100 million or so is likely to be spent on the two Hobbit movies, including an estimated $75 million in rebates and $25 million in extra subsidies.

Some movie companies have also been claiming an estimated $10 million a year in tax breaks to offset supposed losses on profitable productions in New Zealand.

Last year, the Government changed its mind about the tax breaks and passed a law to stop them. The move got little publicity at the time, as it was part of a bigger overhaul of tax laws.

Ministers have frequently cited the money spent by American studios in New Zealand as evidence that the Large Budget scheme is worthwhile.

They have also cited spin-offs for other industries, such as tourism, as justification for the subsidies.

But there has been no major review of the scheme since an independent report in 2005 cast doubt on some of those claims.

That report, by international consultancy Outcome Management Services, concluded that some of the spending was of questionable value and probably displaced spending that would have been made anyway.

It said that at that stage, the net benefit of the scheme was possibly as high as $33 million. But it was also possible it had cost taxpayers up to $38 million.

Officials dismissed the report as too conservative, and said it was too early to decide the fate of the scheme.

Another review was to have been done last year, but it was deferred until next year.

Now, the National Government has again deferred it until after next year's election.

A spokesman for the Ministry of Economic Development said the review had been delayed until June 2012 so it would include the "significant amount of activity" expected next year.

The delay means the review is likely to include the economic impact of the two Hobbit films, production of which Warner Bros threatened to move from New Zealand after a stoush with the actors' union.

However, it could open the review to the same criticism that was levelled at the last report - that it was skewed by the dominance of a single movie, in that case King Kong.

The $48.7 million grant given to King Kong remains the single largest grant handed out under the scheme. Avatar received the next biggest grant of $44.7 million.

The makers of the two movies are said to have spent almost $700 million in New Zealand. It has been estimated $500 million will be spent on the two Hobbit movies.

The Treasury is opposed to the scheme, and in February it urged the Government "to approach any extension or reconfirmation of the grants with caution". In 2006, it suggested there was "insufficient evidence" of large spillover benefits to the economy.

Industry consultant Tim Thorpe said yesterday a comprehensive review was overdue.

Mr Thorpe said he was particularly sceptical of some of the claims made in relation to tourism.