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Criteria for Screen Production Rebates confirmed

17 December 2003 Media release

Criteria for Screen Production Rebates confirmed

The Labour Progressive coalition government has today confirmed the final details of its screen production development package with the release of the criteria for the Large Budget Screen Production Grant scheme.

The scheme, announced in July of this year, will provide a rebate to major film and television productions of 12.5% of their New Zealand based expenditure.
Major productions are defined as those spending at least $15 million in New Zealand.

Economic development minister Jim Anderton, who convened the coalition government’s screen production sector taskforce, says the rebate scheme adds to New Zealand’s attractiveness as a location for major productions.

“Our creative edge, our technological innovations, our skills base and scenery already make an attractive package as a film production location. While there are no guarantees in this world, the government believes this scheme will increase the chances that major productions will choose New Zealand as a film production location,” Jim Anderton said.

“Major productions are important to the sector because they provide an opportunity for continuity of employment, for accelerated skills development and for technology transfer. They are the means by which we’ll develop a strong film industry and sustain investment in the sector.

“The local and regional economies associated with these productions can reap benefits as well. As we’ve seen with The Lord of the Rings, major productions can have a significant impact on tourism and contribute to the New Zealand’s brand as a beautiful, innovative and creative country,” Jim Anderton said.

Jim Anderton said the criteria were developed after consultation with the sector and a review of international experience with similar schemes.

“We’ve decided on a scheme very similar in effect to the Australian one but delivered as a grant scheme not through the tax system. It’s at the modest end of the international spectrum for interventions of this kind and is a useful addition to New Zealand’s marketing effort. We’re not interested in getting into a bidding war for these productions but we do want to make our film production package as attractive as possible,” Jim Anderton said.

The government had set an indicative cost for the scheme at $40 million expenditure per year.

“The beauty of this is that it’s a rebate. If there’s no spending on major productions in New Zealand, there’s no cost to the taxpayer.”

Mr Anderton said the scheme complemented the initiatives the government had taken in response to the Screen Production Taskforce. These were: start up funding for a Screen Council; the development of statistics on the sector; a review of the government involvement in the sector; an increase in funding for Film New Zealand, the sector’s international marketing arm; and an increase in the New Zealand Commission’s annual baseline funding of $10 million.

“Taken together, these measures strengthen the domestic base at the same time as we attract international productions. We’re building up a strong film industry and taking advantage of all the opportunities that come with exposure to international experience.”

The LBSPG will be administered by the New Zealand Film Commission. Claimed spending will be verified by the Inland Revenue Department.

Large Budget Screen Production Grant

Eligibility Criteria


Outlined below are the core eligibility criteria for the Large Budget Screen Production Grant (LBSPG). For further information on administration of the grant or details of the criteria refer to www.nzfilm.co.nz.


(a) Time of Completion
1. A screen production must have been completed after 1 July 2003. A production that was substantially completed (i.e. a feature film that was completed to answer print stage, or an individual television episode completed to master video tape stage with credits ready for broadcast) before 1 July 2003 will not be eligible for the grant.
2. Where screen productions are completed after 1 July 2003, Qualifying New Zealand Production Expenditure (QNZPE) incurred from 1 April 2003 will be eligible for the grant. Any expenditure on a screen production incurred before 1 April 2003 is excluded.

(b) Expenditure Thresholds


3. Production expenditure spent on a screen production must fit within certain QNZPE thresholds:
a) Where the value of the QNZPE is between NZ$15 million and NZ$50 million, QNZPE must be at least 70 per cent of the production’s Total Production Expenditure.
b) Where the value of the QNZPE is NZ$50 million or more it will qualify for the grant regardless of the percentage ratio of QNZPE to the screen production’s Total Production Expenditure.
c) For television series, individual episodes which have completed principal photography within any 12 month period and with a minimum average spend of $500,000 per commercial hour may be bundled to achieve the total of NZ$15 million.

(c) Eligible Formats

4. Eligible formats are feature films (including those shot direct to video), television movies and a television drama series or mini-series.

(d) In-Eligible formats

5. In-eligible formats are:
 a documentary;

 reality TV;

 bundling of screen productions (other than television mini-series and series);

 an advertising programme or commercial;

 a discussion programme, current affairs, news, a panel programme, a variety programme, or a programme of a like nature;

 a production of a public event, including a sports event; or

 a training programme.

(e) Relevant Entity

6. An applicant must be the entity responsible for all activities involved in making the production in New Zealand and must have access to full financial information for the total production worldwide. Only one entity per screen production can be eligible for the grant.


(f) Residency Status
7. An applicant must either be:
 a New Zealand resident company; or

 a foreign corporation operating with a fixed establishment in New Zealand for the purposes of lodging an income tax return (both when it lodges the grant application and when the grant is paid).


(g) Exclusion of Access to other Incentives

8. An applicant seeking the grant will not be eligible for any other New Zealand Government film finance or tax incentives in relation to the screen production (including year 1 deductions under section EO 4 of the Income Tax Act 1994, or funding through government agencies such as NZFC, NZ On Air or Te Mangai Paho or through the New Zealand Film Production Fund). Applicants will however continue to be eligible for development funding that is financed by the New Zealand Government.

(h) Co-production Treaties
9. A screen production which is financially and creatively structured to take advantage of a film co-production treaty between New Zealand and any other country will be eligible for the grant as long as the New Zealand co-producer of the screen production does not access any of the Government incentives above.

Large Budget Screen Production - Questions and Answers

Why has the Government developed this scheme?

It has been developed to assist large scale screen productions in New Zealand because of the economic development opportunities that these productions can provide. The scheme is available to any film or television company that can achieve the minimum production spend in New Zealand.


How will it work? What productions are eligible?

Screen productions – both television and film – that meet the criteria are entitled to a 12.5 percent rebate on their production spend in New Zealand. The minimum criteria are that screen productions must spend at least $15 million in New Zealand.

For productions spending between $15 – $50 million the New Zealand production spend must also be at least 70 percent of total production spend. There is no such requirement for productions whose this spending is above $50 million.

For television series, each episode must have an average production spend in New Zealand of $500,000 per episode, as well as a minimum $15 million production spend within one year of the commencement of the series.

When does the scheme come into effect?

The scheme applies to productions completed after 1 July 2003. Where screen productions are completed after 1 July 2003, qualifying New Zealand production expenditure incurred from 1 April 2003 will be eligible for the grant. Expenditure incurred before 1 April 2003 is excluded.

Productions substantially completed before 1 July 2003 will not be eligible.

What are the economic development benefits associated with these large budget productions?

Large budget screen productions can generate significant spillover effects (such as increased spending) into local economies associated with these productions. Within the sector itself they provide a number of employment and skills development opportunities and the opportunity to work with and adopt new technologies. They can also contribute to the building of a stronger base for the New Zealand screen production industry.

In addition, by showcasing New Zealand scenic locations, skills and talent, large budget productions such as The Last Samurai and The Lord of the Rings trilogy can generate significant benefits for our tourism sector and for other high value added industries.

What impact is this going to have on the local industry?

Large budget productions will provide the local industry with employment opportunities, including longer term employment, and technology transfer to enable upskilling to international levels. This may lead to increased costs for other film producers commensurate with the increased level of production skills in the industry. However, it should also enable more higher budget productions to be undertaken which will benefit both the local industry and those working within it.

What evidence do you have that the grants scheme will increase the number of large productions made here?

The LBSPG came into operation on 1 July 2003. The initial response has been in the post-production sector with some films having either committed or indicated that they will commit to undertaking additional post-production work in New Zealand.

However there are no guarantees. This is a highly mobile sector and New Zealand has neither the means nor the intent to enter into a bidding war against countries that offer more generous incentive packages. If the scheme does not attract large productions then no money will be paid.

The scheme is based on careful consideration of the various ways we could increase the chances of high quality productions coming here. The rebate is at the more modest end of international efforts but combined with New Zealand’s advantages it makes for an attractive package

There will be a class of productions that might have come to New Zealand anyway. There will also be those for whom this is insufficient. But there is also a group for whom this will make the difference – what we’re trying to do is tilt the balance a little more in our favour.

The screen production industry has suggested smaller productions should be “bundled” for consideration as a “large budget” production. You’ve said no – why?

Smaller local film and TV productions receive a considerable amount of government support – about $140 million a year. This scheme has been specifically developed to encourage large budget productions to New Zealand. The critical issue here is one of additionality – that is, the regime is designed to attract a class and size of production that would rarely, if ever, come in the absence of incentives. There are also economic development spillovers associated with large budget productions that are not associated with smaller productions due to the opportunities, critical mass, skill and technology transfers associated with large budget screen production.

In making this initial decision we took into account the strong arguments for developing a rebate scheme that is broadly consistent with Australia’s – where bundling is not permitted. Our scheme differs slightly in that bundling will be allowed for television series where these spillovers will be able to occur. However, we recognise that the boundaries on when these spillovers will occur is not always clear. Officials will undertake further analysis of the costs and benefits of bundling in consultation with the Screen Council and report back by 30 June 2004.

Is this rebate enough to attract large companies here?

Large budget screen productions will chose their locations for a number of reasons, some of which are financial and some of which, such as location, are creative. This is about presenting New Zealand as a competitive, attractive package, based on our strengths. That means keeping abreast of international developments while avoiding a bidding situation. That can only lead to a “race to the bottom”.

What are the roles of the various agencies here?

The NZ Film Commission will administer the scheme with Inland Revenue providing an auditing/verification role. IRD has both the resources and skills to undertake this work, drawing upon the “one-stop-shop” Screen Production Desk that it has established and its normal tax auditing functions.

How were the criteria for this scheme developed?

The initial basis for the scheme was an Australian tax rebate scheme which we have adapted for New Zealand as a grant rebate scheme. We looked at a number of schemes worldwide and decided on the Australian scheme as it only provides a rebate against actual expenditure in the country. Moreover, the Australian scheme is viewed positively by industry practitioners due to its straight forward design. Extensive consultation has taken place with the New Zealand and international screen production industry over the adaptation of the Australian scheme to New Zealand.

The local industry is to receive, via an increase to the Film Commission’s baseline an extra $10 million a year. Major international studios will receive up to $40 million – why the difference in approach?

This is a meaningless comparison for a number of reasons.

The first point to note is that the $10 million increase in the Film Commission’s baseline brings total government support for the local industry to around $140 million a year.

Second, the experience of working on large budget productions will increase the skill levels of the local workforce, with flow on benefits to the local industry.

Third, local productions of sufficient scale are eligible for the scheme.

Finally, the $40 million for the LBSPG is an indicative figure for budgetary purposes which may or may not be spent within any one year. However, if $40 million was rebated under the LBSPG, this would mean spending on New Zealand wages, goods and services of over $300 million. The tax and flow-on benefits of this expenditure would vastly exceed the cost of the rebate.


How will you evaluate the effectiveness of this regime?

The scheme will be reviewed in 2006. A key measure of success will be whether it has generated new work. From a fiscal perspective, it’s important to note that if the programme is not successful it won’t have cost us anything whereas if new activity is attracted, the fiscal and economic benefits will exceed the costs.

Is The Last Samurai going to be eligible for this scheme?

The Last Samurai is likely to meet the criteria for the LBSPG. However, Ministers have recognised that the particular circumstances of TLS, including the timing of its release, together with the need to establish the administration process round the LBSPG, mean that it is probably not feasible for TLS to be processed through the LBSPG.

In light of this, Ministers have previously agreed with TLS that it will receive up to $3 million subject to the TLS being independently verified as meeting the LBSPG criteria. We understand that the TLS's production expenditure in New Zealand since 1 April 2003 would, in fact, mean that they may be entitled to more than $3 million but they have accepted this capped figure in return for a streamlined process through the NZ Film Commission.

TLS also agreed to a number of activities promoting New Zealand, in conjunction with Investment NZ and Tourism NZ, associated with the worldwide premieres of TLS.

Isn't a good documentary as good a showcase for New Zealand as a feature film?

The LBSPG is modelled on the Australian incentive scheme where the list of ineligible formats is pretty much the same as ours. Remember, we were keen to make sure that we made our package as attractive as possible without getting into a competition with Australia.

While a good documentary is a good showcase for New Zealand, by and large the economic development impacts of a documentary are much less than those of a major feature film. They don’t for example employ large numbers of extras or trades people.

The scheme is targeted at a particular group of productions – major features and television series. It’s about the smart use of incentives to grow that side of the industry – not subsidising productions that would come to New Zealand anyway.


The OECD recently criticised government support for this sector – why are you going ahead?

The OECD secretariat’s focus was on the tax loopholes under which LOTR benefited. These loopholes have now been closed and the assistance offered under the new scheme is considerably more modest and much better targeted. .

Moreover, New Zealand is not alone among OECD countries in providing some financial incentive to the screen production sector. While New Zealand is an attractive destination for large budget productions, the simple reality is that these productions are highly sought after internationally. It is naïve to suggest that in this competitive environment we can rely solely on our natural advantages if we want to build on our recent successes.

ENDS

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