Key defends Hobbit tax deal

Prime Minister John Key announcing The Hobbit deal yesterday. Photo / Mark Mitchell

Prime Minister John Key has defended his Government's tax deal which secured The Hobbit movies in New Zealand as far less generous than Labour's Lord of the Rings deal.

But Labour MP and former Minister of Economic Development Trevor Mallard says the subsidies given to Lord of the Rings were inflated by a tax loophole created by National.

Speaking in Ho Chi Minh, ahead of tomorrow's South East Asia Summit, Mr Key said the deal struck by Labour for the Lord of the Rings trilogy was worth far more to the film companies involved "by a margin of an enormous amount".

The National Government's Hobbit tax deal is understood to be worth $75m to Warner Bros across two movies.

Mr Key indicated Labour's Warner Bros deal was worth in excess of $100m per movie for the Lord of the Rings trilogy.

"It was a very generous deal," Mr Key said.

While his Government had "paid a bit more" than it intended to secure The Hobbit, in the overall scheme of things, compared to what the Lord of the Rings cost, it's still good value for New Zealand taxpayers.

But Mr Mallard says a tax loophole created by National in the 1990s opened the door for the $200m subsidy.

It was closed by former Finance Minister Michael Cullen despite a dispute with filmmaker Peter Jackson, he says.

He is accusing Mr Key of deflecting criticism to Labour because he is "desperate" after a Hobbit deal gone wrong.

"The only extra tax breaks that Lord of the Rings got were under a tax law that was changed by Labour.

"John Key is currently desperate about this because people are beginning to see he caved under a little bit of pressure without being properly organised."

That would not have happened under the previous Labour Government, he says.

It spent thousands every year building relationships with Hollywood studios.

"We used to invest in wining and dining film staff and going to film studios. This dispute wouldn't have come to this. If there was a relationship there it could have been sorted more cheaply."