The Labor Government has boosted Screen Australia’s funding by $13 million to support the documentary sector over the next four years and overhauled the Offset rebate schemes to improve efficiency as part of the 2011 Budget.

The changes include halving the minimum Producer Offset expenditure threshold to $500,000 for feature films and single-episode dramas, doubling the post, digital and visual (PDV) effects rebate, and replacing the Producer Offset for low-budget documentaries with a Producer Equity payment administered by Screen Australia.

Other changes include converting the 65 episode cap to 65 commercial hours for television, exempting documentaries from the 20 per cent ‘above-the-line’ cap, and allowing a broader range of expenses to count as qualifying Australian production expenditure (QAPE).

However, the overall $43 million boost to the industry (excluding the increase in Screen Australia funding) will be more than offset by the government’s decision to exclude the goods and services tax (GST) from QAPE and doubling the minimum expenditure thresholds for documentaries to $500,000, which will save the government $48 million over the next four years.

Screen Australia had previously recommended that GST not be included in QAPE because it was administratively difficult to calculate and allowed producers to claim some GST expenditure even if it was refunded by the ATO.

The raft of changes – which largely follow Screen Australia’s recommendations to the recent Review of the Australian Independent Screen Production Sector – is also a tacit rejection of the Screen Producers Association of Australia’s competing proposal for a Producer-Distributor Film Fund.

Screen Australia had been lobbying for a substantially larger increase to its direct funding, largely to support more mid-budget feature films. It will instead receive an extra $2.5 million in 2011-12 and $3.5 million for each of the next three financial years to support low-budget documentaries (see below for more information).

SPAA executive director Geoff Brown released a statement welcoming the government's response to industry concerns. "We were not expecting to see much in the way of additional direct funding in this tough budget so what's been achieved is a great result," he said.

South Australian Film Corporation chairman Cheryl Bart said the decision to halve the Offset expenditure threshold was a serious breakthrough and the PDV changes would help SA-based post-production companies such as RSP.

"These measures are perfectly timed for the South Australian Film Corporation, not to mention the South Australian industry, primed as it is to move into new state-of-the-art Adelaide Studios," she said in a statement.

Screen Australia’s chairman Glen Boreham said the screen sector should take some comfort from the Budget measures, which are designed to invest more money on screen rather than on administration.

“In further recognition of the need for informed debate and evidence-based public policy settings the Government has provided Screen Australia with funds to re-instate the Australian Bureau of Statistics (ABS) screen industry survey,” Boreham said in a statement.

It will be the first time the survey, which measures income, expenditure, profit margin and employment for the entire Australian audiovisual industry, has been conducted since 2006-07.

Screen Australia plans to also explain the budget measures in forums in Melbourne on May 18 and Sydney on May 20.

It has also released the following detailed information about the Budget changes:

1. Direct support for low-budget documentaries

  • An ‘overall’ QAPE threshold for documentary projects of $500,000 – whether for series, seasons of series or single-episodes – will be introduced as part of Producer Offset eligibility. The QAPE threshold of $250,000 per hour will remain.
  • Documentaries which do not meet the new threshold will be eligible for a Producer Equity payment equal to 20% of the budget, in lieu of receiving the Offset.
  • Screen Australia will administer the Producer Equity program, which will provide a simple secure means of support for lower-budget projects.
  • Because Producer Equity would replace the Offset, projects would need to meet a $250,000 per hour budget threshold, have a duration (or episode duration) of a commercial half-hour or more, have significant Australian content, and meet eligibility requirements in Screen Australia’s terms of trade.
  • The Producer Equity payment will be cashflowed through the production, reducing finance costs for producers. For projects with Screen Australia funding, this means the payment can be incorporated into the normal cashflow schedule; for projects without Screen Australia funding, 50% would be paid on application and 50% on delivery.
  • Screen Australia will receive an additional appropriation of $2–3m p.a. to pay for the program.
  • Documentaries which exceed the $500,000 budget limit will remain eligible for the Producer Offset, subject to the statutory criteria.

2. Lowering QAPE thresholds

  • Currently, feature films and single-episode programs (such as telemovies and direct-to-DVD) must meet or exceed an ‘overall’ QAPE threshold of $1m. Single-episode (nonfeature) programs must also meet a QAPE threshold of $800,000 per hour (meaning that a 90 minute telemovie must meet an effective QAPE threshold of $1.2m).
  • These requirements have the unintended effect of artificially inflating budgets and discouraging entrepreneurial projects at a time when production of innovative Australian drama for multiple platforms should be encouraged.
  • Both features and single-episode drama projects will now only need to meet a minimum QAPE threshold of $500,000 to qualify for the Offset, with no average hourly threshold.
  • This will encourage the production of films at more efficient budget levels.

3. QAPE Reform

Generally speaking, a number of expenses that are currently excluded from QAPE will now be able to be claimed. The intent is for as much of a project’s budget as possible to be QAPE, making the Offset more certain and more secure and easier to calculate and apply for.

Where the relevant services are provided in Australia, the following costs may now be considered QAPE:

  • All standard production insurances and Completion Guarantees
  • Costs associated with financing, such as legal fees associated with financing (including preparation of the PIA), production and investor audit fees, company fees set-up and ASIC fees, and medical fees for insurance purposes (actual financing costs, such as interest and application costs will still be excluded from QAPE)
  • Additional marketing costs, such as unit publicists and study guides may be considered QAPE
  • Some previously non-QAPE costs, such as censorship and classification costs, Dolby licenses and film vaults.
  • Carbon offsets

As is currently the case, all QAPE must be incurred prior to the end of the financial year in which the film is completed.

Finally, QAPE will now be calculated on a GST-exclusive basis, correcting an anomaly which had provided accidental benefits for producers. Under current treatment, producers could claim all GST paid as QAPE – even if the GST was subsequently refunded by the ATO. Removing this un-intended benefit will, in fact, reduce the compliance costs for the Offset at final certificate stage as the calculation of the GST paid on QAPE items was a difficult process.

4. Removal of anomalous rules and inefficiencies

A number of aspects of the Producer Offset are in practice inefficient or anomalous in relation to particular kinds of projects. The changes will address these issues:

  • Currently, projects must convert any expenditure in a foreign currency into Australian dollars using two artificial exchange rates – both an average exchange rate and the rate at the commencement of principal photography. Under the changed rules, for projects claiming QAPE of $15m or less, any expenditure in a foreign currency will be converted to Australian dollars utilising the actual exchange rate that applied when the expenditure was incurred.
  • Non-feature documentaries are to be exempt from the 20% above the line cap, recognising that the rule has a disproportionate impact in the case of documentaries.
  • The 65-episode cap on Offset support will be converted to a cap on 65 commercial hours, removing the current inequitable treatment of shorter-form series and seasons of series, particularly animated children series of quarter-hour episodes.
  • Currently short-form animated drama is an eligible format, but short-form animated documentary is not. This inconsistency will be removed, meaning that all short-form animated projects will now be eligible (providing other eligibility criteria are met).

5. Re-instatement of ABS Survey

In further recognition of the need for informed debate and evidence-based public policy settings the Government has provided Screen Australia with funds to re-instate the Australian Bureau of Statistics (ABS) screen industry survey of the screen production and post-production industry.

The survey is a crucial source of information about key business indicators such as income, expenditure, profit margin and employment for the entire Australian audiovisual industry and has not been conducted since 2006/07 (prior to the introduction of the Government’ Australian Screen Media Support Package in 2007/08).

As the national statistical agency, the ABS is in a unique position to collect this data.
 

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5 Comments

  1. THE BANGKOK BAROMETER

    I just returned from Thailand where the movie business is thriving.
    Particularly disappointing though was my observation of the “BANGKOK BAROMETER”. This INDICATED THAT THE PERFORMANCE OF THE MOST RECENT BATCH OF AUSTRALIAN PICTURES WAS SO BAD THAT NONE OF THEM WERE EVEN PIRATED
    IN THE STREETS OF BANGKOK!
    THE SPAA PRODUCER/DISTRIBUTOR FILM FUND WOULD HAVE BEEN OF GREAT ASSISTANCE
    INCIDENTALLY, THE U.K. REBATE SCHEME SEEMS TO BE WORKING WELL. I AM INFORMED THAT THE UK SCHEME HAS AN OVERHEAD OF 2 MILLION POUNDS ANNUALLY. THEY ALSO SEEM TO HAVE BEEN ABLE TO COME TO GRIPS WITH IT ALL , WITHOUT THE NEED TO INDULGE IN NATIONALISTIC IDEOLOGY.
    OUT OF THEIR SYSTEM FLOWS, EMPLOYMENT, PROFIT, AND AN ECLECTIC CROP OF COMMERCIALLY VIABLE FILMS.

    The Govt. film bodies in OZ could be trimmed to about 25 employees and a modest overhead budget.The leftover employees could then rejoin the real world of real movie production. No doubt I can now look forward to some angry comments!!!!!
    BEST WISHES,
    JOHN LAMOND.

  2. How about the funding bodies guarantee publicity and advertising budgets for a production.This would make them much more attractive to investors and solve the problem of budgets being tapped out in post so there is not one cent left for P and A.
    Make the P and A guarantee the incentive not the production cost saving ,its a business model the investment sector can understand.

  3. I am glad QAPE has been lowered. I think it should be lowered further to at least $250,000 but perhaps less. I don’t really understand the arguments for why it has to be so high but i’ll give you my reasoning why being low will benefit local productions.

    #1 we are about to enter the digital age of cinema. Digital cinema cameras are becoming better (as evident in the major releases in last 12 months), they are becoming smaller and more sensitive to light. This means production costs can be cut significantly at little or no expense to quality.

    #2 First time film makers have a better chance of entering the market. At such high amounts it is difficult to find someone willing to risk a large investment on a first time film maker. If we return back to the most successful period of helping artists and producing the best talent we see a time where tax incentives helped. While it also produced tax evaders, it is evident that the Australian industry and Australia in general reaped many benefits. Our best films came from that era and the Australian people were proud of Australian films. People in other countries were happy to see our films.

    #3 More diverse range of films. private investing groups could spread their investments, or smaller groups would be formed for particular interests leaving a numbers game of getting it right. The protocol of picking films for funding by a group of people with certain criteria does not work. Artists sometimes go on feelings and intuition. There is no formula for a successful film because if there was then they would all be successful.  This is democracy in action,… it’s apparently what we value highly in this country, yet funding bodies set harsh criteria for funding and pick projects based on this criteria and also this sets it up for corruption. I am not saying there is corruption but certainly the word on the street is it’s a members only club. Film makers are just learning to play the right games and we see the artists pushed aside and criticized while people who play the game with crap ideas are taken seriously because they went to a hollywood seminar on pitching and are doing all the right pitching moves… there’s also what appears to be a form of censorship in what stories are being told. This is very important. We all understand the indigenous issue in australia is important for example but when films that are forced to portray the issues in a certain way, reflecting attitudes of the federal government then realism is stripped of its core asset in storytelling. And the audiences aren’t dumb. They pay with their hearts, soul and integrity. If the marketing promotes one thing and they get another they are going to feel ripped and the Australian film brand is going to suffer. Some people will refuse to go and see an Australian film based on this. While Lantana and Animal Kingdom are supported by local awards, local media and some of the best marketing available in Australia, as stories they still fall flat. They don’t give us anything new. Yes the casts are great, the performances brilliant, character investigation good and the production values up there, however the stories in themselves do and say little. So we need to get some of those great Australian artists supported, the Beresfords, the Campions, the Wiers and of course the millers and kennedies… We need to seek deeper and we need to encourage film makers to break boundaries not fill criteria’s. That attitude has a proven track record and one in which we should try investigating in a little more. By lowering the QAPE, we would be encouraging this. Audiences love to be challenged with new ideas and new perspectives. It has been the quest of artists since the dawn of time to do this and the most successful have been the most challenging.

  4. Good article Jason.
    I think dropping QAPE to at least around the 200k mark is essential to nurturing the futures of film makers in Australia. Non traditional distribution and funding is evolving to a more cut and dry business relying on solid recoupment strategies which will exclude viable opportunities in the low budget arena.

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