Treasury officials considered bending the government’s budget rules to absorb the enormous cost of subsidizing the new Lord of the rings TV program.
This year, despite the increasing cost of Covid-19, $ 1 in every $ 20 of new government spending in the budget has been earmarked to support films, which have yet to be identified.
The movie subsidy is linked to the production cost – for every $ 5 a producer spends in New Zealand, he gets 1 back. So if production is costly, its support will be greater.
A large chunk of the money this year will go to the companies owned by Jeff Bezos, the world’s richest man behind the latest Lord of the rings Adaptation.
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Bezos did 2020 well; This year alone has seen his net worth increase by nearly a third of New Zealand’s GDP – $ 75 billion (NZ $ 106 billion).
A research paper from 2019, published under the Official Information Act, looked at the cost of subsidizing a TV series through the NZ Screen Production Grant, an effective cost-benefit subsidy for New Zealand film production.
The Treasury has warned that some options to deal with the high cost of the supply could damage the government’s strong public finances before Covid, sink its books into deficits and make a fundamental difference to our debt-to-GDP ratio.
Instead of choosing either of these options, the Treasury Department recommended an option that would not change the deficit or add to the debt heap. But this will only be achieved through savings elsewhere.
In other words, every dollar paid to filmmakers must be taken elsewhere.
And those cuts were steep. The grant scheme has significantly exceeded the envisaged budget in just a few years. In the 2017 budget, the scheme was awarded $ 55 million annually for the years 2017-2021.
But by 2019, the scheme was already in demand. An additional $ 155 million was approved for the rest of that year. This year, the government approved another $ 206 million.
To put that in perspective, the money paid for a few Hollywood movies this year is only marginally more expensive than the increased benefits.
Benefits increase $ 25 per week for people looking for work and the cost of emergency benefits is estimated to be $ 283.6 million this year. The benefits increase to support a single parent costs only $ 104 million this year – half the amount allocated to movie grants.
The reason for this out of control cost is that the New Zealand Film Support Scheme is completely unrestricted. This means that if all of Hollywood decided to move to New Zealand, taxpayers would be forced to pay billions.
Very simple scheme. For every $ 5 a producer spends in New Zealand, they get $ 1. Some lucky movies get a bigger return. This means that for every $ 4 they spend, producers get $ 1.
Understandably, this spooked the treasury. He has always classified the scheme as a “significant fiscal risk,” warning that the unspecified nature of the subsidies poses a risk to the public finances.
With both symbol picture And the The Lord of the rings Depending on one-off subsidies, “significant financial risks” could loom.
So in September 2019, the Treasury Department took the extraordinary step of writing a briefing on the various ways in which the government could withhold the “substantial grant payments” it owes to producers. Lord of the rings.
The Treasury Department has warned that 2017 financing is “likely to run out” and warned that additional financing will be required every year through 2024 – the end of the forecast period.
The Financial Hobbit Hole
The Treasury has considered another way to book the cost of the scheme. The deal with the television program was less like regular government spending and more like a New Zealand retirement program, for example.
In each budget, the finance minister determines how much new money they want to spend that year, called operating allowance. Then various ministers bid for that much money as the finance minister had to make tough decisions about the most valuable bids.
Retirement is different. It is shipped out of the OS allowance. This means that the Minister of Social Development does not have to go to the Minister of Finance every year to obtain additional funding from the provision – it will automatically come out.
The Treasury Department considered this approach to the Lord of the Rings, but warned that an increase in operating allowances “will directly affect primary and net crown debt.” OBEGAL records whether the government is in surplus or deficit.
This means that the additional spending will have a direct impact on the government’s ability to record a surplus and its ability to keep its debt under control. The Treasury Department estimated that this option would “increase the Crown’s core debt”, but its estimate has been revised.
Another option considered is just an increase in the operating allowance, but the payment of the benefit is urgently needed. This would also put pressure on the government’s ability to run a surplus and would have an impact on the crown’s debt. However, it does come with the advantage of not having to block new government spending to pay for the film’s subsidy.
In the end, the government decided on the recommendation of the Treasury Department: keep the operating allowance constant and make trade-offs with other government spending to bear the film’s subsidy.
The Treasury Department warned that this would “reduce the space for additional spending in other areas” and “require trade-offs.” This would “reduce the government’s ability to fund other initiatives during the budget process.”
The trade-offs are made. Of the $ 3 billion operating allowance for 2020/21, $ 185 million was allocated to film support – the equivalent of just over $ 1 for every $ 20 in operating allowance.