Govt's Hobbit pact: One deal to rule them all

Prime Minister John Key announces that the Hobbit movies will be filmed in New Zealand. Photo / Getty Images

Up to $34 million in tax breaks and help with marketing costs and an urgent change to labour laws are the price of keeping The Hobbit in New Zealand.

A deal between Warner Bros executives and Government ministers was confirmed last night after two days of negotiations.

The announcement was widely applauded - except by the Green Party, which called the plan for a law change "outrageous".

The deal will keep the $670 million project in New Zealand, creating thousands of jobs as well as tourism opportunities and international exposure.

New Zealand also secured one of the world premieres of the movies, and Sir Peter Jackson will work on material promoting this country as a tourism destination that will be included in all DVDs and digital products for The Hobbit, expected to reach an international audience of tens of millions.

In return, the Government will offset the films' marketing costs by US$10 million ($13.4 million) and pay up to US$7.5 million ($10 million) in extra tax breaks for each of the two movies, subject to their success.

That would bring the total cost to the Government, including tax rebates and the marketing credit, to just under $100 million, but Mr Key said it made financial sense because of the marketing opportunities for New Zealand tourism.

The changes to tax rebates will apply to all large film projects.

"There was some expenditure that didn't qualify under the old scheme," Mr Key said.

"We've looked to broaden that out. It puts us in line with other countries that have a broader definition of qualifying expenditure."

The Prime Minister said he could not go into details because of commercial confidentiality.

A source close to the negotiations told the Herald that the talks had been "tough" and that Mr Key's earlier estimates of a 50/50 chance of success were not exaggerated.

While the high New Zealand dollar - which has risen 50 per cent in the past few months - was a factor, Warner Bros had been prepared to cope with it until unions instituted an international actors' boycott.

Only then did the Hollywood company seriously consider other destinations, the source said.

When negotiations began this week, Warner Bros made it clear that the main issue was employment law and the status of employees and independent contractors.

Once that issue looked likely to be resolved, the discussions turned to money, the source said.

Mr Key said Warner Bros had asked for a lot more money than was provided in the final memorandum of understanding, and tax incentives in other countries were still far more attractive than in New Zealand.

But Warner Bros - subject to the labour laws changing - ultimately still wanted to make the movies in New Zealand with Sir Peter at the helm.

The legislative changes will apply to the film industry - not just to The Hobbit movies - and will ensure that film workers hired as contractors will not be able to later argue in court that they were employees.

Mr Key said the change would give film workers certainty on their employment status from the moment they were hired.

The amending legislation will be introduced to Parliament today under urgency and already has the support of the Act and United Future parties, which is enough to ensure its passage into law.

Mr Key said the changes were the "critical" issue for Warner Bros.

The Government might consider broadening the changes to include other performers such as television industry workers.

Green Party co-leader Russel Norman said Warner Bros was always looking for more money.

"John Key is selling out ... just to meet the demands of a multinational corporation."

Labour MP Trevor Mallard said he was "exceptionally happy" that The Hobbit was staying in New Zealand, but it was dangerous to change laws simply because a foreign company demanded it.

Mr Key said the Government did what was necessary to save the films.

"It was a commercial reality that without this [law] change, these movies would not be made in New Zealand."