… for the announcement that the Commonwealth government is spending $20 million to support the production in Australia of a Disney film of the Jules Verne novel 20000 Leagues Under the Sea. I was interviewed by Gary Maddox who wrote an opinion piece supporting the subsidy, but mentioning my opposition.
For dogmatic free-market advocates, there’s not much need to explain why the subsidy is a bad idea – it follows from the general claim that all subsidies are bad, and for the real dogmatists, that any kind of government expenditure is bad. But I’m happy to support subsidies to film production under some circumstances so I need to explain my position a bit further, and the Maddox piece provides a handy foil
Maddox relies primarily on a straightforward argument applicable to any kind of subsidy, saying
Federal and state subsidies could total more than $50 million, when you add the $21.6 million grant to a tax rebate of 16.5 per cent (the ”location offset” for big-budget foreign movies), plus whatever NSW, Victoria and Queensland offer to get the work.
In round terms, even if the star gets a salary of $20 million, the director, producers and other foreign cast get $15 million and post-production goes overseas, 20,000 Leagues could spend $130 million to $150 million in Australia
Taking the most optimistic view, the government subsidy amounts to one dollar in three spent in Australia, a subsidy rate of more than 30 per cent. By contrast, the much-criticised motor vehicle industry gets less than 10 per cent. It’s fair to say that almost any industry imaginable could find $150 million worth of activity that would be sustainable with a 30 per cent subsidy.
Although it’s not explicit, there may also be an appeal to Keynesian fiscal stimulus here. But, in this stage of the cycle, we need fiscal consolidation not stimulus. Although we are not at full employment in the way this term was understood in the 1950s and 1960s we are at the point where most of the resources used in the production of this film will be attracted from other industries, not drawn from the pool of unemployed workers and capital. So, the actual net economic benefit of the film production (disregarding the subsidy) will be close to zero. Effectively, from an aggregate economic point of view, the $50 million subsidy is money down the drain
Again unstated, but clearly in Maddox mind, is the idea that there is something special about the film industry. Roughly speaking, I’d imagine the argument to run as follows: the film industry is culturally important, and we need continuity of work to keep people in the industry, so it’s good to subsidise films like this one. But this is like the kind of argument for funding space travel that relies on the alleged spinoff of non-stick frypans.
The film industry is important, as Maddox himself notes, because it produces films like The Sapphires that tell us something about ourselves as a culture. So, if we want films like this, we should subsidise them directly. Maddox estimates that the money spent on the Disney subsidy would finance “one or two medium-budget Australian film”. But presumably the government doesn’t have to pay the whole cost. Presumably a 50 per cent subsidy would support 3 or 4 films, and almost as much economic activity as the Disney project. More importantly, we would actually have the films, and some chance that at least one of them would be a good one.
I don’t know whether this would be the best use of our limited budget funds. But there would at least be a genuine benefit to set off against the costs.
fn1. The government’s surplus target was silly, not because the idea of getting back to surplus was wrong, but because it tied itself to a rigid, and ultimately unfeasible timetable for restoring balance.