The Australian Film Commission took its first steps to privatising its completion guarantor operations after compiling a damning internal assessment of filmmakers’ cost overruns, according to documents released for the first time by the National Archives of Australia.
The survey of 59 films funded by the AFC between 1975 – 1980 covered the budget overruns of local classics including Sunday Too Far Away, Newsfront, Breaker Morant, Don’s Party, Picnic at Hanging Rock and The Chant of Jimmy Blacksmith.
The survey found roughly two out of three films went over budget while nearly one in three films were more than 15 per cent over budget – the normal fee-free level allowed by the AFC under its completion guarantee terms.
It was a period of spiralling costs for the industry – production budgets were already rising by an average 16 per cent a year – and the situation was about to get worse as tax breaks were increased. Meanwhile, costs more than doubled to $553,000 by 1980 from $276,000 just five years earlier, according to the internal AFC report.
“AFC and other investors had to outlay approximately $2.7 million for overages in the period and, with an estimated recoupment rate of about 46 per cent only, this led to a total loss of $1.47 million, even without discounting for inflation, opportunity cost etc,” the report said.
In today’s dollars, the net losses amount to about $5.36 million.
The first film-focussed tax concessions were introduced in 1978 through Division 10B of the Income Tax Act, which allowed an accelerated 100 per cent write-off of capital expenditure involved in film production over a two-year period starting from when the film began to earn revenue.
The lucrative 10BA tax scheme was introduced in June 1981, allowing investors to write off up to 150 per cent of capital expenditure on qualifying screen productions and be tax exempt for up to 50 per cent of the production’s net earnings. It accelerated the rise in production budgets as investors showed more interest in the tax breaks than the films being produced.
In early-1980, the AFC was still losing money on its completion guarantee operations, which were proving increasingly ineffectual and conflicted as production budgets continued to rise.
The AFC report used the budget overage data to recommend the commission begin charging commercial rates for completion guarantees (around 6 per cent) and consider allowing private completion guarantors to reinsure part of the AFC’s current deals.
At that time, the UK-based Film Finances was considering entering the Australian industry.
The report outlined several benefits including “improvements in production cost controls (i.e. fewer films running over budget)” although the introduction of 10BA soon put an end to that hope.
The 10BA scheme's tax deductions were later wound back and finally replaced by rebates through the government's screen production incentive package in 2007.
Selected AFC Funded Feature Films 1975 to 1980 – Budget Overages
Source: National Archives of Australia