An orc discusses the pros and cons of the hobbit law with the wizard Saruman (Christopher Lee).
An orc discusses the pros and cons of the hobbit law with the wizard Saruman (Christopher Lee).
Opinion by Liam Dann
Liam Dann, Business Editor at Large for New Zealand’s Herald, works as a writer, columnist, radio commentator and as a presenter and producer of videos and podcasts.
That means it will follow the epic legends of Middle-Earth's second age, in which Hobbits do not feature.
So mainly elves, dwarves, orcs and humans, for those Aucklanders sizing up their anatomical suitability for work as extras.
That won't bother the hundreds of local film production crew, caterers, builders and other contractors looking forward to the arrival of what's tipped to be the biggest-budget series in television history.
There's talk that the production might have a budget of up to $3 billion.
Foreign producers are typically subsidised for about a quarter of production costs.
So that could be as much as a $750 million tax break that we're giving Amazon, which is owned by the world's richest man Jeff Bezos.
The subsidy scheme, originally created to secure the production of the Lord of the Rings films, has increased over the decades.
Herald investigative journalist Matt Nippert has written that the New Zealand taxpayer has forked out at least $600 million to Hollywood producers since 2010 to support the film industry.
Jeff Bezos, founder and CEO of Amazon, and the world's richest man.
Whether the subsidies and special labour laws the government provides to entice Hollywood heavyweights here makes economic sense remains debatable.
Various studies commissioned by the government have failed to draw a definitive conclusion around the hard economics.
I understand that the hard numbers might not add up to a net gain.
But a gut-feeling suggests a strong local film industry has had more wide, sweeping benefits.
The alignment of Jackson's film series with New Zealand's enormous tourism boom and rise in the global awareness of brand New Zealand isn't coincidental.
It's hard to count the value exporters have gained by leveraging off that greater recognition.
And if you weigh the tax break against an alternative where foreign production companies don't come here at all – then it's even harder to argue with.
That's a view both this government and the last have taken.
There was much to love about New Zealand's quirky "cinema of unease" in the 1970s and 80s - but boosting economic growth didn't really figure.
Broadly there seems to be bipartisan support for the subsidies now.
The ACT party has been a lone voice in opposition but largely because it doesn't like the idea of governments picking winners.
ACT would effectively extend the film industry tax break to all business by slashing the overall corporate tax rate.
It's a view that reflects a great ideological divide on tax policy.
Hobbiton, near Matamata, has become a tourist attraction since it was built to film the Lord of the Rings.
Can lower taxes actually earn governments more revenue in the end by enabling greater total wealth creation?
Both National and Labour have hedged their bets on this over the years – accepting the need to keep corporate tax rates competitive with rival economies - but not going down a fully neo-liberal, low-tax model - like Hong Kong or Ireland.
ACT raises an interesting point, though.
If the Coalition Government is comfortable with a lower corporate tax rate for film producers, why not other corporate sectors?
Like both our major political parties, I'd be nervous about betting the house on a "slash them and they will come" corporate tax strategy.
Unlike Hong Kong and Ireland, we're a long way from the centre of the business world and if it didn't work we could see a dangerously big hole emerge in the Crown accounts.
New Zealand is not really desperate to create jobs, either.
The unemployment rate is at an 11-year low.
But what we do need is more highly paid jobs to lift our standard of living and to generate higher savings rates.
That might mean more tax revenue but definitely mean the government could relax about the nation's overall financial health and borrow more.
We need more creative jobs, more science and technology jobs, more jobs in the financial and professional services and more high-end manufacturing jobs.
On that basis I'm not so averse to governments picking more winners.
The Coalition has reinstated R&D tax credits so it is also now subsidising companies prepared to invest in New Zealand based science and technology.
How about manufacturing?
While it's hard to compete on labour costs - companies like Sistema are making a go of it.
Perhaps a tax break for companies prepared to invest in new plant and machinery would pay dividends.
The Capital Markets 2029 review this month suggests considering incentives for capital-intensive investment.
"This is likely to attract and retain investment capital in New Zealand, such as infrastructure investment," it said.
It notes the Government's tax policy work programme will consider the role of the tax system in driving infrastructure and supports that.
And how about the financial sector itself - thousands of highly lucrative local jobs have disappeared in the past decade as the big global firms have pulled back to Australia.
Offering tax breaks to massively profitable investment banks might seem politically unpalatable - until you remember we're all happily giving one to the world's richest man.
