OECD knocks 'Rings' films' multimillion tax subsidies

By SIMON LOUISSON

The Paris-based OECD has taken a swipe at the Government for providing a reported subsidy of up to $400 million for The Lord of the Rings film trilogy.

"Lord of the Rings received as the result of a tax loophole a subsidy amounting to $300-$400 million, very large not only relative to the Government budget but also as a proportion to the total cost of making the movie, reported to have been $675 million," say the authors of the organisation's annual study of New Zealand.

"It is an open question whether the subsidy yielded New Zealand a net benefit."

They said assessing this was difficult, as it depended on whether the film would have been made in New Zealand in the subsidy's absence.

And possible spillover benefits, such as building up the fledgling film industry and gaining international publicity for the country as a production location and as a tourist destination, were hard to measure.

Some reports estimate the three films will gross the film-maker, Time-Warner's New Line Cinemas, up to $8 billion. The first two movies have combined ticket sales of about US$650 million ($1 billion), says box-office tracker Exhibitor Relations.

The tax loophole, established by a former National-led Government, was closed in 1998 but this year the Government decided to establish a grant scheme for the screen production sector.

This was also knocked as "an unhelpful precedent" by the OECD report.

The grant scheme, for which $40 million a year has been set aside, targets large productions. Those spending more than $50 million in New Zealand automatically qualify.

For productions in the $15 million to $50 million category, at least 70 per cent of the budget will need to be spent in New Zealand to qualify.

Film-makers will be able to recoup 12.5 per cent of a film's New Zealand production spending.

The OECD report labels the Government's strategy to actively assist growth in three sectors - biotechnology, information and communication technology and "creative industries" - as controversial.

The report also examines New Zealand's productivity and immigration policies. It says productivity growth has increased, but not enough to lift New Zealand up the OECD income rankings.

It said more needed to be done if the Government wanted New Zealand to rise into the top half of the 28-member club of wealthy countries. Latest figures put it at 20th in terms of per capita income.

"The slide in relative living standards vis-a-vis the OECD average seems to have been arrested, but a further acceleration - necessary if New Zealand is to move back into the top half of the OECD ranking, as the Government is intent on doing - is still not in sight," the authors state.

The report found that immigrants have had a high unemployment rate in New Zealand because of poor English language skills and employer discrimination.

In its report on the economic impact of migration in New Zealand released yesterday, the OECD says recent policy changes have focused on boosting employment rates of skilled immigrants, which were disappointing in the 1990s.

The OECD admits to being baffled about why past reforms had not yielded larger productivity gains given New Zealand's "best practice" in most policies.

New Zealand's small size and distance from markets are suggested as a possible explanations.

The economy is praised for its openness but the authors frown on the trend towards more Government intervention and rising rigidity in the labour markets.

The OECD

* The Paris-based Organisation for Economic Co-operation and Development (OECD) groups countries sharing a commitment to democratic government and the market economy.

* It publishes annual economic reports, gathers statistics, and does work on trade, education, development and science and innovation.

* New Zealand is one of 30 member countries.

- NZPA

December 9, 2003

Organisation for Economic Co-operation and Development:

Economic Survey - New Zealand 2003 summary

[PDF]

* Return Of The King opens in New Zealand on Dec. 18.

Herald Feature: Lord of the Rings