Opinion & Commentary
The high price of subsidies
Last week, the film Avatar overtook Titanic to become the highest grossing movie in history by raking in about $US2 billion. It is a James Cameron film (who also made Titanic) about how a virtuous alien race called the Na’vi on the planet Pandora rejects the ravages of capitalist Earthlings.
Meanwhile, back on Earth, the idealistic makers of Avatar turned out to be slightly less virtuous than their onscreen characters, saying that the only reason they chose to film in Aotearoa was because of the $45 million subsidy provided by the New Zealand government.
This grant was reasonable, we are told, because without it, the film would not have been shot in New Zealand and, consequently, not brought in $307m to the economy for the relatively light price tag of $45m. Not only that, it provided employment, encouraged New Zealand tourism, and increased the standing of New Zealand’s film industry worldwide.
Taken at face value, these seem like good reasons to support the film industry. However, like virtually all industry assistance schemes, the feel-good factor outweighs any economic benefit.
Picking winners, such as the film industry, is nothing new for New Zealand, and there is certainly a sense of national pride that goes with it. In reality, it brings few quantifiable benefits and is fundamentally unfair to the majority of industries that don’t get assistance and the taxpayer who foots the bill.
To start with, there is a basic equity issue. Economic Development Minister Gerry Brownlee has defended the grant (presumably against his better judgement – he didn’t invent the scheme, and probably doesn’t wish to appear curmudgeonly), citing all the money it has brought into New Zealand. Apparently, for all the subsidies to the film industry, the taxpayer has spent $189m for expenditure in the economy of $1.4b.
But this misses the point. Expenditure does not equal an economic benefit and so the government has made a trade-off over where cash will be spent – it could have spent the $189m on education and health or anything else the average taxpayer would benefit from.
Implicit in any subsidy is the idea that a particular industry is more worthy for assistance than others.
Tom Greally of Weta Digital, the New Zealand visual effects company, says it employed up to 900 people at the peak of Avatar’s production. Averaging that figure out shows that each of the Avatar jobs cost the taxpayer at least $50,000.
Regardless of how good Weta’s work is (and it is excellent), there is no principled argument to be made for taxpayers subsidising jobs in the film industry and paying film industry salaries, as opposed to any other. Why are those involved in film-making more deserving than those at a forestry mill that might close? Or a rural hospital that could be kept open?
It is an inequitable situation.
Greally and Penelope Borland, CEO of the Screen Production and Development Association of New Zealand (Spada), claim the subsidy is needed to compete, because other countries such as Australia, and most US states, subsidise films being made there. This is true, but recent research from the US-based Tax Foundation suggests that an ‘arms race of incentives’ is developing between competing film locations (especially in the United States), with dubious claims about economic benefits. And in any case, just because subsidies will get films made here is no argument for why one should be made here.
This leads to another major point: opportunity cost. Any resource used for one thing is an opportunity forgone to use it for another. So what if New Zealand misses out on a few films produced here because it doesn’t give subsidies to the industry? Those resources will be used elsewhere in the economy – perhaps for something more profitable or sustainable. An international ‘race to the bottom’ will result only in a higher price to ‘buy’ films and a greater opportunity cost for each one bought.
This is why Brownlee is missing the point when he claims the subsidy is a good idea and that it has helped New Zealand tourism.
Even in cases where New Zealand scenery is showcased (one would imagine Avatar would increase tourism only to Pandora, its mythical planet), the ‘encourages tourism’ argument is a bit disingenuous. Sure, it might encourage tourism (although, Lord of the Rings aside, reliable evidence for this is scant), but it does so at the opportunity cost of resources being employed in other economic activities.
Think about it: the New Zealand government has given $45m to the highest-grossing movie of all time; and this represents a direct wealth transfer from the people of New Zealand to Fox Studios.
I’m not sure the Na’vi people from the planet Pandora would approve.
Luke Malpass is a Policy Analyst at The Centre for Independent Studies.
