How much does Australia really subsidise overseas films? And is it worth it?


Ridley Scott’s next film and the latest Chris Hemsworth vehicle, Thor: Ragnarok, will be filmed in Australia. The joyful announcement by the foreign minister, Julie Bishop, and the arts minister, Mitch Fifield, celebrated their fine work in persuading 20th Century Fox and Marvel Studies to bring their productions here.

The fine work was really done by the money: $47.25m in direct funding to the two productions. And the dollar, at US$0.70 once again, means spending US dollars in Australia makes good sense.

What the announcement didn’t say was the $47.25m is only half of the money that the government will provide. It doesn’t include the 16.5% tax offset the productions will receive via the “location offset”.

The location offset is designed to entice big-budget ($15m+) film productions to Australia. I have a bit of a soft spot for it, because in my former life as a public servant it was my job to administer it. But it doesn’t get mentioned by politicians because it is covered by the tax secrecy laws.

In total, though, it’s a lot of money. The ministry for the arts notes that in 2014–15, there were 56 applications for the location offset and PDV offset (which is a 30% rebate for post and visual effects work), which led to production expenditure in Australia of $356.73m. Rebates payable in 2014-15 for those offsets totalled $69.4m.

The policy is the big-budget Hollywood films provide a level of work that keeps the industry going, allowing companies to invest in equipment and training which then can be used on Australian productions, leading to a better quality Australian product.

Anecdotally, I am aware companies do often provide services for lower rates to local film productions than they do when Hollywood comes to town.

Australian films also get a secret tax rebate, the “producer offset”, which provides a 40% rebate on production costs if production qualifies as “significantly Australian”.

In 2013-14, the three offsets combined cost $252.0m, according to the Productivity Commission, making it the ninth-biggest budgetary assistance program given to any industry:

Most nations have similar tax rebates or credits that are higher than the 16.5% we offer.

Ausfilm, the government-funded organisation that markets Australia to international film producers, has lobbied for the location offset to be raised to 30% in order for it to be more competitive.

Put bluntly: it’s a hell of a lot easier for an LA film production to go to Vancouver and pretend it’s in San Francisco than it is to fly to the Gold Coast and do so. But instead of raising the location offset to 30%, the government provides money on an ad hoc basis to provide money to make up the difference.

The $47.25m in funding announced by Bishop last week for two films is around 15% of the $300m the production will spend in Australia making the film.

Add that to the 16.5% rebate and total government subsidy of the film is around the 30% mark. This means the full government investment into the two productions is of the order of $90m, not $47.25m.

The Turnbull government is not the first to do this. In 2012 Julia Gillard announced $12.8m for the production of X-Men: Wolverine, and in 2013, the production of 20,000 Leagues Under the Sea received $21.6m (filming is yet to begin).

So is it good policy? Economically speaking, not really. So costly have the tax credits been in the US, that some states – such as Louisiana – have begun to wind them back.

Sure, it will bring in $300m in offshore investment to Australia’s economy and create 3,000 (temporary) jobs, but there are plenty of other companies that would add jobs and growth were they given a 16.5% tax break.

Certainly since the offsets were introduced in 2007, production has increased. International production took a massive hit from the high dollar and the GFC, but overall production in the Australian film industry is doing well.

However, studies in the US suggest the state film tax credits have delivered negligible economic benefits and many of the jobs go to out-of-state workers who come for the production and then leave (although that is less of an issue here).

Of course, film funding is not just economic policy, but cultural. So are they delivering on the cultural objectives? And how do we measure that?

The producer offset was designed to encourage bigger Australian productions, and it certainly has: Australia, The Great Gatsby, The Lego Movie, Mad Max: Fury Road, the upcoming Gods of Egypt, and I, Frankenstein.

Local audiences like these global blockbusters too. Earlier this month Screen Australia noted that Australian films by the start of October had already broken the annual box office record:

Mad Max: Fury Road was largely responsible which is no real issue – box office records are always driven by big-tent pole features.

In real terms 2015 is thus Australia’s ninth strongest year for the cinema, the best result since 2000 (The Dish, The Wog Boy, Looking for Alibrandi and Chopper). Or 14th best since 1980 when you consider our national share of the box office take. That share, 6.8%, will definitely fall once the latest Hunger Games and Star Wars movies are released.

The problem is the box office is almost a rigged game – we just don’t have the money to compete. In 1992 when Australian films took in 9% of the Australian box office, the average budget of the top 10 films was US$39.5m, and the average box office takings in Australia was A$11.05m.

Last year the average budget of the top 10 films in Australia was US$127m – a 221% increase. The average box office take? A$26.4m – only a 139% increase:

The cost of making popular films has soared well beyond that which can be recouped just in Australia. The costs have risen but the audiences haven’t:

Consider that in 1982 The Man From Snowy River took in $17.23m. The then-average price of $5 a ticket meant around 3.44m tickets were sold. If that many tickets were sold for a film in 2014, it would make $47.11m.

For context, last year the most popular movie in Australia was The Hunger Games: Mockingjay – Part 1, a massive smash, with a built-in audience, and it made only $32.8m.

This cost is also connected with how films make money now. Back in 1982 a film had time to find an audience – important for the small films Australia generally produces. In 1982, the top 50 films in the US made just 12.8% of their money from the opening weekend; now it’s around 31%:

When nearly a third of your income comes from the first weekend you need to make a splash – an expensive splash.

Is there room for a small, plucky Aussie film? Well yes – Paper Planes, which also received $1.466m in direct funding from Screen Australia, made $9.65m. Oddball, which received $2.263m, made $8.12m. And Last Cab to Darwin, which received $978,500, took in $7.15m.

These are fantastic efforts, but they’ll never see Australian-produced efforts crack more than 5-6% of our box office. To get over 10%, the top five Australian films would need to make around $90m combined.

How hard is that? It’s roughly the combined takings of Mad Max: Fury Road, The Water Diviner, The Great Gatsby, The Sapphires and Red Dog – essentially five good years in one.

So how to judge the performance of our film polices? Well certainly we have bigger productions, and we are making films that can find a good-sized audience. And artistically, as critics like Luke Buckmaster noted last week, the last 10 years were something of a golden age.

So the various film tax offsets are doing what they were expected to do – increasing domestic film production, of both overseas and domestic films. And there is evidence the policy has led to an increase in audiences for Australian films.

Does the cost justify the ends? Given we’re talking both economic and cultural policy, it’s a hard question to answer. It is made doubly difficult for voters, because while the location offset ensures the money and jobs the industry needs to keep it sustained, tax secrecy means you’ll never hear politicians talk about it.

http://www.theguardian.com/business/grogonomics/2015/oct/26/how-much-does-australia-really-subsidise-overseas-films-and-is-it-worth-it

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