Government Is Letting Australia Steal Our Fastest-growing Export Sector

New Zealand’s fastest-growing export sector is in crisis. Job growth at our largest studios has stalled, senior staff are being poached by Australian companies armed with aggressive government incentives, and Kiwi businesses are being forced to open new offices across the Tasman instead of at home. Hundreds of high-tech, high-wage jobs are at imminent risk of being lost to Australia.

This is the challenge facing New Zealand’s interactive media or video games sector, which is worth nearly half a billion dollars in exports annually and employs over 1200 highly creative and skilled workers. 96% of its earnings come from exports, which had been growing 34% annually.
The alarm bells have been sounding since the 2021 Australian Federal Budget, when Australia announced that one of its flagship economic development initiatives would be aggressive incentives to attract the digital games sector to relocate, invest and work in Australia.

From 1 July 2022, Australia’s federal government began offering a 30% Digital Games Tax Offset (DGTO) on top of 10-15% state rebates. Every $1 million of qualifying expenditure could see a $450,000 cash benefit to New Zealand companies who move resources to Australia rather than stay in New Zealand.

This is an economic boon for Australia but, with CER and a single labour market, it is at New Zealand’s expense. With open borders for workers across the Tasman, it is easy for Australia to poach New Zealand workers and for New Zealand businesses to relocate across the Tasman. 
Unfortunately our Government hasn’t responded, despite the problem worsening considerably over the past year since borders reopened post-Covid.

As a result, several New Zealand studios are looking to relocate across the Tasman because it is no longer competitive to operate at home.

Interactive media supports our Government’s goals for a high-wage, low-emission, export-led and diversified economy. The sector is highly productive with average earnings per employee of $380,000 and last financial year posted revenue of $407 million versus Australia’s $300 million. Our success is largely due to developing and retaining ownership of our own IP, quality tertiary education and digital exports enabled by investments such as ultrafast broadband. 
Losing these is an ‘own goal’ for the New Zealand economy.

If we are to have a transition from oil and gas to weightless exports to reduce carbon emissions, we need growing industries to transition to. Game development ticks so many boxes. 
In the two years since Australia announced its incentives, job creation at our largest studios has stopped due to staff poaching and salary competition from Australia. Buoyed by the new incentives, the Australian industry added 770 new jobs in just one year.

Many New Zealand studios are already actively investigating investing in Australia rather than creating jobs locally. These include successful studios such RocketWerkz, PikPok, Digital Confectioners, StaplesVR, Metia Interactive and others. Last year Victoria’s Minister for Creative Industries proudly announced that Lower Hutt-based A44 was opening a studio in Melbourne. Wellington’s PikPok set up a new studio in Columbia rather than expanding to Christchurch. International studios that were eyeing New Zealand are now logically talking to Australia instead.

The costs to New Zealand include lost high-wage jobs, foreign direct investment fleeing to Australia, domestic investment fleeing to Australia, and lost Government tax revenue. Also at risk are significant benefits to economic transformation, the digital ecosystem, regional development, the Māori economy, the screen sector and export diversification. Once gone, these won’t easily come back.

We already know how to solve this problem. We’ve asked the Government to respond with a 30% Interactive Digital Media Rebate to stop the loss of highly-skilled talent to Australia. This would protect our existing jobs and create thousands of additional high-wage jobs over the next 10 years while lifting wages. We estimate the cost of the policy at $35 million annually, but tax revenues would quickly return more than $75 million annually and more than pay for the cost of the incentive.

Worldwide there are over 20 similar schemes with 25% to 40% incentives, including in the United Kingdom, Canada and Europe. Finland, with a similar population to New Zealand, has managed to grow its game development sector to over $5 billion. If we can get our solution in the 2023 Budget, New Zealand has the ability to reach similar heights. If we don't, the sector will simply move to Australia and New Zealand’s fastest growing export sector will be lost.

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