Flanked by a smiling telecast of actor Chris “Thor” Hemsworth and director Ridley Scott, foreign minister Julie Bishop and arts minister Mitch Fifield last week announced some blockbuster news for the Australian film industry.
Production of upcoming films Thor III, Thor: Ragnarok, and Prometheus 2 from the Aliens franchise would all take place in Australia, they said.
True, Australian taxpayers will be partially footing the bill, with the Australian government chipping in A$47 million to 20th Century Fox and Disney’s Marvel Studios to entice them onto Australian shores.
But the benefits will far outweigh the cost, we are told. According to Fifield:
Every job created in the film and television industry supports 3.57 jobs in other industries. Every dollar of turnover creates turnover of $3.52 in other industries. And an amount equal to 13-20% of spend comes back to the Australian Government in taxation, and a further 3% goes to state governments in the form of taxation.
There’s only one problem: those figures are simply conclusions drawn from economic models (called input-output models) that assume very generous multiplier effects from initial government investment.
The magic of economic models
To be fair, Fifield is quoting industry figures and a 2013 report titled Valuing Australia’s Creative Industries, prepared for the Creative Industries Innovation Centre by consultants at SGS Economics and Planning.
These sorts of consultants' economic impact studies drive economists crazy because of the way they are used to imply that a change in spending will multiply through creating all sorts of new jobs. But that’s not what these models mean.
I would argue that governments do not and cannot create jobs – only markets and entrepreneurs do. Why? Because creating jobs is hard and requires discovering new sources of value that others had not seen.
If the figures in Fifield’s assertion were correct, then surely private investors (in the form of the financing industry) would have already spotted those opportunities.
And where does this blockbuster enticement money come from? From tax, obviously.
And when you tax an existing business, you are imposing additional costs upon it. That destroys incentives and jobs. So for the extra jobs and spending created by giving money to one group, you have to subtract away the jobs and spending lost from the ones you took the money from. Usually those will be similar, so there will be zero net effect. But the figure could even be less than zero, because of the distortion created by the political interference.
And then there are rent seeking effects, where the beneficiaries of the subsidies (the film studios) spend resources lobbying for these tax breaks. This is unproductive spending, further compounding the waste.
So when you hear about the wonderful flow-on benefits of hosting these film productions in Australia, don’t simply wonder if the numbers are inaccurate. It’s not as though it is really 2.07 rather than 3.57 broader Australian jobs that every job in the film and television industry here supports.
It’s that these are not checkable facts in the first place. They are political promises that are never subsequently verified for their accuracy as a prediction.
And this is not just true of film and television. It’s true of every sector that seeks to promote its economic impact to public spending, such as big sporting events like the Olympics or the Formula 1 Grand Prix in Melbourne, which routinely promise thousands of jobs created and enormous multiplier effects.
As always, it’s worth taking such political assurances with a very large grain of salt.
Jason Potts receives funding from the Australian Research Council. He is an Adjunct Fellow at the Institute of Public Affairs.
Authors: The Conversation Contributor