The government has abandoned plans to rein in ballooning subsides for Hollywood, citing film industry opposition and the threat of lawsuits from the producers of James Cameron's Avatar films.

The Weekend Herald reported in June these payments - that sees studios get cash payments of up to 25 per cent of their local spending on productions - had totalled $575 million since 2010, prompting Economic Development Minister David Parker to announce he was looking at ways to cap or limit the escalating costs to taxpayers.

But yesterday Parker, speaking from Australia, said following consultations with industry around the viability of their business - and thousands of accompanying jobs - without subsidies, and legal advice over a 2013 deal signed with Avatar producers, said cuts or changes to the subsidy scheme were now off the table.

"We're not proposing to introduce a cap. We accept that the subsides are necessary, and we accept there's a benefit to the country," he said.

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In 2013 the National government signed a memorandum of understanding with Lightstorm Entertainment and Twentieth Century Fox committing the government to paying for a quarter of the costs of the upcoming Avatar sequels.

Parker said any changes to the subsidy scheme would expose the government to legal risks.

"The advice we had is that the last government had agreed to an uncapped liability for future subsidies for the Avatar film series. If we were to cancel that and to pull out of that deal there would have been litigation issues," he said.

Parker said the costs to government from that deal would be significant. The 2013 agreement suggests the Avatar films will cost a minimum of $500m, of which a quarter - or $125m - will be paid by government.

Actual spending on the films - and the accompanying subsidy - is likely to substantially exceed this minimum as two films are already in production with the prospect of two more in the pipeline. The first Avatar film cost $360m to produce in 2009, and Hobbit trilogy of films, also filmed in Wellington under the subsidy scheme, ended up costing a total just over $1b.

Parker sheeted this exposure, potentially hundreds of millions of dollars to the taxpayer, back to the previous National government.

Movie directors James Cameron (left) and Sir Peter Jackson. Photo / Mark Mitchell
Movie directors James Cameron (left) and Sir Peter Jackson. Photo / Mark Mitchell

"I'm somewhat surprised that the prior government agreed to an uncapped liability for that - particularly when they didn't budget for it," he said.

Briefings to Parker, obtained under the Official Information Act, detail officials' concerns that despite having paid out around $1 billion over the past decade to attract international film productions, government officials were still unable to prove the spending was worthwhile.

Recent payouts under the scheme include $7.8m to the producers of Tom Cruise action vehicle Mission Impossible 6, and $24.6m - with more to come - for Jackson's upcoming Mortal Engines.

"It is not possible to definitively say whether the [subsidy scheme] provides value for money," Parker was told in May.

Issues over assessing the net economic value - or cost - of the scheme came down to differing, and unresolved, differences between analysts over whether financial resources and jobs committed to the film industry could be better-utilised elsewhere.

Treasury's assessment of the subsidies were relatively clear-cut, concluding they were likely a net annual $15.9m cost to the economy - although their analysis of best- and worst-case scenarios gave a range of possible outcomes from $26.4m in annual benefits to costs of $58.2m.

Costs for the international portion of the scheme - funding mostly Hollywood productions - have regularly exceeded budgets. Spending increased from $108m in 2015 to $127m in 2017 - requiring Ministers to regularly request funding boosts during the budgetary process.

The breiefings say Parker will again approach Finance Minister Grant Robertson to top-up the scheme for next years' budget.

The briefings notes concern had been expressed in 2017 by the previous government, with cabinet tightening the sorts of spending eligible for the subsidy and raising broader issues including "the question of value for money".

Parker said he wasn't entirely dismissing the criticism by officials but said international rivals for film work were also offering subsidies.

"There's something in that, but it's also true that you have to balance that with whether you want to have a major industry. It's a binary decision here – you either have this subsidy, or you don't have an industry."

"You'd be a foolish government to allow the film industry to fail, you might never get it back," he said.