Icarus - one of the games created by RocketWerkz - the Auckland firm whose founder Dean Hall says future projects could be developed across the Tasman. Image / Supplied
Icarus - one of the games created by RocketWerkz - the Auckland firm whose founder Dean Hall says future projects could be developed across the Tasman. Image / Supplied
OPINION:
New Zealand’s fastest-growing export sector is in crisis.
Job growth at our largest video gaming studios has stalled, senior staff are being poached by Australian companies armed with aggressive government incentives, and Kiwi businesses are being forced to open new offices across the Tasman instead of at home. Hundredsof high-tech, high-wage jobs are at imminent risk of being lost to Australia.
This is the challenge facing New Zealand’s interactive media or video games sector, which is worth nearly half a billion dollars in exports annually and employs over 1200 highly creative and skilled workers. Ninety-six per cent of its earnings come from exports, which had been growing 34 per cent annually.
The alarm bells have been sounding since the 2021 Australian Federal Budget, when Australia announced that one of its flagship economic development initiatives would be aggressive incentives to attract the digital games sector to relocate, invest and work in Australia.
NZ Game Developers Association chair Chelsea Rapp. Photo / File
From July 1, 2022, Australia’s federal government began offering a 30 per cent Digital Games Tax Offset (DGTO) on top of 10-15 per cent state rebates. Every $1 million of qualifying expenditure could see a $450,000 cash benefit to New Zealand companies who move resources to Australia rather than stay in New Zealand.
This is an economic boon for Australia but, with CER and a single labour market, it is at New Zealand’s expense. With open borders for workers across the Tasman, it is easy for Australia to poach New Zealand workers and for New Zealand businesses to relocate across the Tasman.
Unfortunately, our Government hasn’t responded, despite the problem worsening considerably over the past year since borders reopened post-Covid.
As a result, several New Zealand studios are looking to relocate across the Tasman because it is no longer competitive to operate at home.
Interactive media supports our Government’s goals for a high-wage, low-emission, export-led and diversified economy. The sector is highly productive with average earnings per employee of $380,000 and last financial year posted revenue of $407m versus Australia’s $300m. Our success is largely due to developing and retaining ownership of our own IP, quality tertiary education and digital exports enabled by investments such as ultrafast broadband.
Games industry employment boomed last year (see above) but the NZGDA says job growth has stalled in 2023. The sector has faced pressure from new incentives offered across the Tasman.
Losing these is an “own goal” for the New Zealand economy.
In the two years since Australia announced its incentives, job creation at our largest studios has stopped due to staff poaching and salary competition from Australia. Buoyed by the new incentives, the Australian industry added 770 new jobs in just one year.
Many New Zealand studios are already actively investigating investing in Australia rather than creating jobs locally. These include successful studios such RocketWerkz, PikPok, Digital Confectioners, StaplesVR, Metia Interactive and others. Last year Victoria’s Minister for Creative Industries proudly announced that Lower Hutt-based A44 was opening a studio in Melbourne. Wellington’s PikPok set up a new studio in Columbia rather than expanding to Christchurch. International studios that were eyeing New Zealand are now logically talking to Australia instead.
The costs to New Zealand include lost high-wage jobs, foreign direct investment fleeing to Australia, domestic investment fleeing to Australia, and lost Government tax revenue. Also at risk are significant benefits to economic transformation, the digital ecosystem, regional development, the Māori economy, the screen sector and export diversification. Once gone, these won’t easily come back.
A solution
We already know how to solve this problem. We’ve asked the Government to respond with a 30 per cent Interactive Digital Media Rebate to stop the loss of highly-skilled talent to Australia. This would protect our existing jobs and create thousands of additional high-wage jobs over the next 10 years while lifting wages. We estimate the cost of the policy at $35m annually, but tax revenues would quickly return more than $75m annually and more than pay for the cost of the incentive.
Worldwide there are over 20 similar schemes with 25 per cent to 40 per cent incentives, including in the United Kingdom, Canada and Europe. Finland, with a similar population to New Zealand, has managed to grow its game development sector to over $5 billion. If we can get our solution in the 2023 Budget, New Zealand has the ability to reach similar heights. If we don’t, the sector will simply move to Australia and New Zealand’s fastest-growing export sector will be lost.
- Chelsea Rapp chairs the New Zealand Game Developers Association.
Late last year, as the NZGDA pushed the Government for a response to the Australian Government’s A$1.2 billion incentive package for video gaming companies, then Digital Economy Minister David Clark announced that total funding for the “Code” programme, which offers matching grants for game development work, would be increased from $1m per year to $2.25m per year until 2027. Code offers seed funding from $10,000 to $40,000 and grants of up to $50,000 to $250,000 for more established firms.
