Credit: Original article can be found here
New Zealand’s fastest-growing export sector is in
crisis. Job growth at our largest 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. Hundreds of 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. 96% of its earnings come from
exports, which had been growing 34% 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.
From 1 July 2022,
Australia’s federal government began offering a 30%
Digital Games Tax Offset (DGTO) on top of 10-15% 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 $407 million
versus Australia’s $300 million. 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.
Losing
these is an ‘own goal’ for the New Zealand
economy.
If we are to have a transition from oil and
gas to weightless exports to reduce carbon emissions, we
need growing industries to transition to. Game development
ticks so many boxes.
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.
We already know how to solve this problem.
We’ve asked the Government to respond with a 30%
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 $35 million annually, but tax
revenues would quickly return more than $75 million annually
and more than pay for the cost of the
incentive.
Worldwide there are over 20 similar schemes
with 25% to 40% 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.