P. P. McGuinness, “How to kill an industry: The Australian film industry scandal,” The National Times, December 13-18, 1971, pp. 1, 48.
The scandalous state of affairs in the Australian film industry, which politicians and the public have passively accepted for many years, is now receiving some attention in official circles.
For so long has it been accepted that big overseas distributors, and overseas-owned exhibitors networks, should dominate the cinema scene in Australia that people still express surprise when the suggestion is made that the industry could be run differently.
After all, is not America the natural home of the motion picture? Do not all the best films come from Hollywood? That this is not the case is simply demonstrated by the thriving film production industries of France, Sweden, Mexico, Brazil … to name but a few.
Attempts by Australians to set up a film producing industry have been strangled at birth by the peculiar privileges which overseas companies enjoy in the Australian market, and the fact that behind the scenes activities by these companies have so far been successful in rendering ineffective any attempt by Australian Governments to foster a domestic film industry.
The history of the film industry in Australia is long and murky.
From time to time efforts have been made by Commonwealth and State Governments to offset the obviously growing influence of the American companies in the industry, but always these attempts at regulation seem to have ended up rebounding to the benefit of the overseas companies, and to the detriment of would-be film-makers in Australia.
A case in point is the special treatment given to the film companies in the Commonwealth Income Tax Assessment Act. Section 138 of the Act, as amended in 1942, provides that overseas-owned film companies should pay tax on taxable income including 10 per cent of their gross income from films (after allowing for some trivial deductions, such as tariffs on film stock).
Originally the taxable income was 30 per cent of gross income, and was deliberately designed as a penal rate because of the unwillingness of film companies to disclose their true profits. In the 22nd report of the Commissioner of Taxation, presented to Parliament in 1940, the matter was explained thus:
“The amount of 30 per cent was chosen for Commonwealth purposes as being big enough to compel the overseas producers, if they desired to have it reduced, to produce proper accounts showing detailed production costs from which the actual profit derived in Australia could be ascertained.
“That it was not too high is indicated by the fact that in the good years immediately prior to the depression, accounts lodged showed actual profits derived in Australia approaching 25 per cent of the gross receipts. Since and during the submission of overseas accounts has generally resulted in a taxable income of nil being established.”
The Commissioner of Taxation went on to discuss further the unsatisfactory nature of the information supplied him by the film distributors, and concluded: “It is thought that if the real and substantive position could be discovered, it would be found that the overseas companies were deriving taxable income, and substantial amounts of taxable income, from the business in Australia.
“It would appear that the only practicable method of dealing with the situation is to fix some arbitrary percentage of the amounts going overseas as representing the taxable income of the overseas companies, and making such assessments final and irrevocable. Some figure less than the statutory 30 per cent would be necessary as it is recognised that the percentage was deliberately fixed at a higher figure than would be actually earned.”
This conclusion of the commissioner’s was the sole justification of the reduction from 30 per cent to 10 per cent which was made in 1942; it is not surprising that in war-time not very much attention was paid to the matter.
But since then the overseas film distributors have their taxable incomes assessed at an absurdly low rate (and it is generally recognised that the Australian market is one of the most profitable); there has been no investigation of the affairs of the companies since the thirties. And, of course, the rate of taxation on companies not specially privileged has continued to rise.
So now the overseas film distributors — Paramount, United Artists, Warner Brothers, Columbia, Twentieth Century-Fox and others — find themselves in one of the most advantageous tax niches of the Australian system, without any compulsion whatsoever to disclose their profits to the Taxation Commissioner, nor any uncertainty as to the rate of taxation to which they will be subject. One can only wonder as to the rate of taxation on profits which they are actually paying; but there seems a strong case for a re-examination of the hasty decision of 1942.
When one turns to the matter of State legislation on the film industry, the position becomes, as Alice would say, curiouser and curiouser. The most important of the States, from the point of view of distributors and exhibitors, is New South Wales, which accounts for more than 40 per cent of the total film market. The industry in New South Wales is governed by two major Acts: the 1935 Cinematograph Films Act, and the 1908 Theatres and Public Halls Act (as amended).
The Cinematograph Films Act was expressly designed to encourage the nascent Australian film production industry, and to protect exhibitors from monopolistic moves by overseas film distributors. It has been quite unsuccessful in achieving either of these aims — the quota provisions, meant to assure the production and exhibition of Australian films, have never been enforced, and the exhibiting industry is now mainly controlled by the two giants, Greater Union (half owned by the Anglo-American Rank Organisation) and Hoyts (largely owned by 20th Century-Fox).
Mr Willis, the NSW Chief Secretary, whose duty it is to enforce the Act, has never tried to do so; last week he declared that he would not enforce the provisions of the Act regarding quotas, and said: “I readily admit they have not been enforced by me or my predecessors.”
The Act provides that exhibitors shall show a minimum percentage of Australian-made films each year; that distributors shall handle a minimum percentage; and further, that if the films are not produced independently the distributors shall “produce or cause to be produced” Australian films sufficient to fill their quotas. That is, they should invest in the Australian film industry.
Each year the quotas are determined anew by announcement in the Government Gazette. Each year the quotas have remained at the original 2.5 per cent for exhibitors and 3 per cent for distributors. In the six years in which he has been Chief Secretary Mr Willis has not seen fit to recommend that these quotas be reduced, although it is within his power to do so; yet he admits that he has never tried to enforce the quotas. This smacks of hypocrisy.
Why, in any case, does he consider them unenforceable? He argues that if the quotas were enforced distributors would move to another State, where there was no legislative provision for quotas. But how does the place of operation of the distributor affect the distribution of films in NSW? After all, they could as easily distribute films from their head offices in America. Would that invalidate the quota provisions?
Mr Willis further argues that such requirements are better enforced by the Commonwealth Government; fair enough — let him refer his powers in the matter to the Commonwealth.
But the quota provisions are only one of the many interesting features of the Cinematograph Films Act. Under the Act there was set up the NSW Theatres and Films Commission, which is concerned with the licensing of picture theatres and the general administration of the Act. The main function of the commission nowadays is licensing; if an owner of a public hall wants to show feature films he has to apply to the commission.
Strangely enough, there are very few applications for licences from prospective exhibitors who are not tied to the established exhibitors’ chains. The reason for this is simple: no one is going to bother applying for a licence if he thinks he is not going to receive a sympathetic hearing, nor is he going to pursue an application if he thinks it will be rejected.
Thus it is true, as the Chief Secretary has said, that in the past five years no application has been refused. But it is also true that five applications have been withdrawn, and it is also the case that several would-be exhibitors have desisted even before the stage of formal application.
The grounds for refusal of a licence are wide; anyone may lodge objection to the granting of a licence, and one of the grounds for refusing it may be “undue competition and economic waste.” This simply means, of course, that it is sufficient for an existing picture theatre owner to argue that new cinema would adversely affect its box office returns.
The chairman of the commission is Mr Herbert Hayward, who was, for many years prior to his appointment, an executive of Greater Union Theatres. The other members of the commission are Mr H. V. Rudder, a former Assistant Under-Secretary in the Chief Secretary’s Department, and Mr D. S. Bain, a Sydney builder who is a former president of the NSW Employers’ Federation.
The intimate concern with the industry which Mr Hayward’s appointment in February, 1969, evidence is not new; his predecessor was Mr W. R. Harrop, who has the distinction of having simultaneously been President of the Theatrical and Amusement Employees’ Association and the Motion Picture Exhibitors’ Association. A foot in both camps, so to say.
Section 11 (c) of the Cinematograph Films Act lays down that “A person shall not be qualified for appointment as a member (of the Films Commission) if he has any pecuniary interest in any branch of the film industry.” The commission has wide powers to investigate any matter affecting the film industry, and can act with the statutory powers of a Royal Commission: it can require any distributor or exhibitor to open its books for inspection.
It has never, however, used these powers; nor is it likely that they will ever be used, despite the decision of the markers of an Australian film, Stockade, to demand that an inquiry into the industry be held.
Thus the Australian film industry is subject to a complex of laws, the net effect of which is to prevent the development of any tradition of local film production. Despite all the sporadic attempts to make laws which would foster it, the foreign distributors and exhibitors have always won out.
No Australian film producer has ever received terms from the distributors for showing his film which were other than ruinous. For example, They’re a Weird Mob, grossed some $3 million in Australia — so far the producers have been paid about $300,000. For they are paid a percentage of the profits, and the profits are determined by the distributors who will not open their books to anyone.
The main reason for this is probably that the efforts to foster a film industry have been violated by the protectionist bias of the laws. Protection never, in the long run, does the country which imposes it much good. The proposals of the Federal Government — probably the first delaying move it could think of — to impose an increased tariff on foreign films, could only harm the industry.
For even if the tariff were effective — and under Section 138 of the Commonwealth Income Tax Assessment Act it would be in any case deductible from the foreign film distributors’ assessable income — only the small “art” films would suffer; and these are the films which film-makers in Australia must see if they are to improve their products.
The best form of assistance to the indigenous film industry would be temporary — not permanent, for permanent protection breeds corruption — quotas provisions, enforced, imposed by the Commonwealth Government to ensure that no State rivalries could interfere with the administration of the provisions.
In addition, direct subsidies to cinemas showing Australian films and producers of Australian films are desirable. If the Council for the Arts can afford to subsidise lavishly the opera and the ballet — both, however worthy, the concerns of tiny minorities, why not the film, the major mass art of this century?
The complaints of distributors about the quality of Australian-made films are irrelevant, for the only way in which it will be possible to have good Australian films made will be to give them access to audiences on equitable terms. The monopoly of the overseas-dominated distributing and exhibiting industry has so far prevented this.
The best single contribution which the Australian Government and the State Governments could make to the development of a healthy and viable film industry in this country would be the abolition of all legislation and protective measures specifically relating to the film industry, and the enforcement at both State and federal level of the Trade Practices Act.
If Australians are incapable of making good films we shall see it; but unhindered by the interests of overseas film interests.
_____
Further reading for Economics.org.au readers
It is interesting to compare that essay with:
(1) McGuinness articles later in the 1970s on the unwillingness of the taxpayer-subsidised film industry to be accountable;
and then (2) McGuinness’s empirically-formed conclusion decades later that it appears government funding of film turns out to be inadvisable.
