By RUTH BERRY political reporter

A $40 million-a-year scheme subsidising Hollywood blockbusters made in New Zealand will have a minimal effect on the economy and could even set it back $5 million, Treasury papers say.

The papers, obtained by Act MP Rodney Hide under the Official Information Act, also raise questions about whether the subsidies will influence decisions made over filming here and say a number of films entitled to the subsidy would have come here anyway.

The scheme was announced by Economic Development Minister Jim Anderton in June.

The Government rushed the announcement to try to attract the company working on a series of five films, worth $200 million each, based on C. S. Lewis' Narnia novels.

Where the films were to be made had not been decided, Mr Anderton said yesterday.

Mr Hide said the Treasury documents showed the grants were a waste of taxpayers' money, but Mr Anderton rejected this, saying Treasury forecasts traditionally took a "gloomy" approach.

The taxpayer-funded system enables film and television companies to recoup 12.5 per cent of their production costs if they have spent at least $15 million. Bigger budget films will get the largest incentives.

Spending on the scheme will vary from year to year, but $40 million has been made available this year.

At the time of the announcement Mr Anderton said that figure was based on the large-scale film and television production companies already considering filming here, including the Narnia project.

Those projects could result in a $300 million investment in this country and the scheme overall would result in a net economic benefit, he said.

But the Treasury papers show modelling indicated "it is not clear whether the benefits from the tax incentive, in terms of additional GDP, would outweigh the direct tax cost to the Government of the tax incentive". This would depend on the responsiveness of the industry to tax incentives, partly influenced by exchange rates.

"Our model indicates the net benefit (increase in GDP) could be between minus $5 million and [plus] $10 million per annum."

Mr Hide said if the Government was going to divert taxpayers' money into the pockets of multimillion-dollar Hollywood film giants, there had to be considerable economic benefits.

But the advice showed "we are spending $40 million to potentially lose $5 million or gain $10 million".

"The reason I asked for the papers was to compare Mr Anderton's political puffery with the official advice. With Mr Anderton it's always been the case that he's misrepresented his advice."

Mr Anderton said the benefits of the scheme would be "larger than the sum of the Treasury model".

The Treasury's forecasts were often narrow and "tend to be rather bleak and negative".

He conceded that no film contracts had been signed as a result of the incentive, but said it was early days and that if no one wanted the subsidy no money would be lost.

The papers show the Government was concerned tax incentives for film-makers introduced in Australia in late 2001 might skew the playing field and opted to act decisively.

But it also considered taking no immediate action.

Treasury concerns

Film companies can recoup 12.5 per cent of their production costs if they have spent at least $15 million. The Treasury had advised the $40 million scheme could be costly. It was also concerned:

* There were no guarantees that a film subsidy would, on its own, attract film-makers.

* Enticing foreign productions could distort the local industry by causing skill shortages and wage rises.

* Subsidy abuse - "the film industry is not immune to this".