The Government will keep funding large-budget films despite the Treasury's reservations about the assistance scheme and a report that shows its economic impact could in the "worst case" result in a $38 million net loss.

Economic Development Minister Trevor Mallard says the economic evaluation of the Large Budget Screen Production Grant should be treated with caution.

He backs the scheme, saying that without it large-scale productions might be made elsewhere.

The Government introduced the grant two years ago.

Five grants have been made - to King Kong, The Lion, the Witch and the Wardrobe, Without a Paddle, Hercules and Power Rangers - totalling $49.728 million.

The grant provides a 12.5 per cent rebate on production expenditure of more than $15 million within New Zealand as long as the total spent here is greater than 70 per cent of the total production budget.

Where production expenditure exceeds $50 million, the 70 per cent threshold is waived.

The economic evaluation estimated the net economic impact of the scheme at between a "best case" $33 million net gain and a "worst case" $38 million net loss.

Treasury officials said there was not sufficient robust evidence to support the view that there were large spillover benefits to the economy to justify the subsidy programme.

The finding that the grant could have a negative economic impact raised doubts about its effectiveness, the Treasury said.

But Mr Mallard said yesterday that in his view the overall benefits outweighed the costs of the grant.

The economic evaluation said large-scale productions had injected $363 million into the economy and generated direct economic growth of $173 million and indirect growth - due to the impact of films on tourism - of $22 million.

Tax receipts from the sector less the tax cost of the grant was $50 million.

The report said there appeared to be sound economic reasons for the Government targeting the sector and assisting its growth.

Mr Mallard said benefits that were not quantified included the goodwill the scheme generated with screen producers and the value of the international reputation New Zealand was developing because of its large-scale productions.

He said the Government had decided to continue the grant in its current form. A full review of the scheme was planned for 2009.

Tim Thorpe, executive director of the New Zealand Screen Council, said he was relieved the grant would continue.

- NZPA