The financial case for offset reform: report

Film Crew
Film Crew

If the government were to adopt the recent House of Reps inquiry’s recommendations to level each of the offsets to 30 per cent and decouple the Location and PDV Offsets, the total value that offset-supported production adds to the Australian economy every year would grow by almost 35 per cent to $1.6 billion by 2021-22. In addition, jobs and wages in the industry would be increased by 37.5 per cent over the same time period.

That’s according to a new report from Olsberg SPI, commissioned by the Australian Screen Association, which attempts to quantify the various impacts each offset of the offsets – Producer (Film and TV), PDV and Location – has had since its introduction, and consider options for reform.

The proposed changes by Standing Committee on Communications and the Arts would enhance the already beneficial impacts of the offsets on the Australian economy, the report argues. Overall, it would make Australia a more attractive production destination, especially as it would address the “present low value of the Location Offset compared to Australia’s international competitors” and existing uncertainty around the “unreliable top ups process”.

“This would result not just in the attraction of some productions – such as The Martian – which Australia missed out on due to uncertainties around top-up funding, but also others that at present do not even consider the country. Furthermore, as a result of the lack of certainty on top-up funding, private investment in the facilities sector which would likely have been required has also been lost,” it states.

However, the report also says that if the government were to adopt the industry’s preferred model – that would still see the Location Offset raised to 30 per cent and decoupled from the PDV offset, but the Producer Offset for TV brought in line with the current film offset at 40 per cent – there would be an even greater increase in economic activity. This is as the same benefits for the footloose production sector would be secured as under the inquiry’s model, but domestic production would also grow.

If this model were adopted, the valued added back into the economy would be projected to reach $1.9 billion in 2021-22 – an increase of 61.2 per cent from 2016-17 – and wages and jobs in the sector would rise more than 65 per cent.

“Such a model would also likely generate significant private investment into the sector, as new facilities are built to take advantage of the opportunities on offer, further expanding the productive capacity of the industry. We estimate the value of this impact on physical studio space alone at $96 million by 2021-22,” the report says.

It also argues against a reduction in the Producer Offset for film, noting it would potentially cause disruption among the independent industry. “This reflects ongoing challenges in the financing market for such films, and the significant risk premium which they hold over broadcaster-supported TV projects.”

The report also analysed the economic benefits of all of the offsets to the Australian economy since they were introduced. In total, it found that the gross value added to the economy directly related to productions supported by the offsets almost doubled from $199.8 million in 2007-08 to $386 million in the last financial year. When indirect and induced impacts (which include second-round impacts on other sectors of the economy, and knock-on expenditure from higher wages) are included in the analysis, offset-supported production spend contributed $1.18 billion to the local economy in 2016-17, up 133 per cent from $506.2 million in 2007-08.

This has been accompanied by a 60 per cent growth in jobs – from 15,617 full-time jobs in the first year of the offsets to 24,989 now. Direct income to Aussies engaged in offset-supported productions rose from $1.05 billion to $1.91 billion over the same period.

According to the analysis, the government currently gets $3.86 back for every dollar in offset dispersed, including any discretionary top ups, and the economic activity generated has paid an average of $1.05 in taxes back for each dollar granted.

The PDV Offset, as well as both the film and television Producer Offsets, have had significant impacts on the sector, the report argues. While the Location Offset has also had a strong impact, it concludes would be much less so without the discretionary top-ups provided by the Federal Government in recent years, which have effectively seen that particular offset raised from 16.5 per cent to 30 per cent.

“Since the value of the PDV Offset was increased to 30 per cent in 2011, the impact on the Australian digital production sector has been transformative. This has included major investments in facilities and staff, the re-shoring of productions which had formerly left the country, and the evolution of the Australian PDV sector into a major attractor of international production spending. The value of this has been recently underlined by Technicolor’s recent announcement of a A$26 million VFX facility in Adelaide.”

“The Offsets have been similarly impactful in the [domestic] TV production space, where they have helped to encourage the development of world-leading Australian companies, and assisted domestic firms to hold IP, and develop new markets and avenues for business. In the film sector, the Offset has, furthermore, successfully supported the ongoing production of Australian-led films in a difficult market for risk finance.

“Without the federal (and in some cases state) top-ups the footloose production sector for film and TV – which targets the Location Offset – would have fared substantially less well… discretionary top-up funding is normally essentially to secure this inward investment.”

It suggested that the current level of the Location Offset seriously inhibits the current attractiveness of Australia as a production destination when compared to places like the UK, Georgia (US) and Canada which have higher incentive schemes, leading to the loss of up to $350 million of footloose production since 2016-17.

The report also states that state or regional incentives play an important role in attracting footloose productions, they are not sufficient in value or scale in the absence of a competitive federal offset, and that the lack of certainty around the Location Offset has inhibited capital expenditure into facilities.

“Productions Australia should have easily attracted, given its skills and locations, have been lost to other territories such as New Zealand, the UK, and Georgia (US)… While Australia’s geographical isolation can be a challenge for incoming productions from economic impact perspective, this tends to generate significant benefits once productions are in the country. As sets cannot be easily moved out, nor individuals quickly brought in, the Australian market – whether film crew or companies supplying the sector – captures a large percentage of production spend. This is reflected in strong indirect and induced economic impacts.”

The government has not yet responded to the House of Reps inquiry’s recommendations, and recommendations of the Australian and Children’s Screen Content Review, which were to specifically address the incentives, have yet to be made public. A third inquiry by the Senate, into Australian content on broadcast, radio and streaming services, is due to report in early May.

The report is available online here.

  1. Simple math. Bring offshore investment as much as possible and offer the big bucks. We don’t have to waste billions on our worthless auto industry that was a ZERO factor in competition worldwide but we CAN and DO compete worldwide with our creative film and TV industry. But do not tighten the strings for local / indie production or you will kill the heart of domestic production. Everybody argues for money and their thing is their thing, but film/tv is one of the very few CLEAN, GREEN, NEGATIVE-FREE industries where we can prosper and flourish with meaning indefinitely and add great value to locales where these projects (int’l or domestic) are based. There is no negative whatsoever, unless you think it is money better needed to send Vegemite to Mogadishu or remodel Manus Island. Because it’s “the arts” it gets thrown in the same bucket with ridiculous sculptures, theatricals, etc and other incentives that do have some merit, but are NOT industries that can employ thousands and exponentially trickle down $$ to every other related and symbiotic industry. But everyone who subscribes to IF knows that already… 🙂

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