Last updated: October 27, 2010 7:33 pm

New Zealand PM reaches ‘Hobbit’ deal

New Zealand has agreed to make changes to employment law and offered additional tax incentives in order to convince Hollywood executives to film The Hobbit in the country.

The deal with Warner Bros underlines the importance of the film industry to tourism in New Zealand following the release of The Lord of the Rings trilogy, to which the two Hobbit films will serve as prequels. Tourism has replaced dairy farming as the country’s top export earner, according to data released on Wednesday.

The Lord of the Rings films, the first of which was released in 2001, displayed New Zealand’s breathtaking natural landscapes and spurred tourism’s growth.

Government ministers have said that the films, based on the books by J.R.R. Tolkien, were a factor in close to 10 per cent of tourists coming to the country.

“Making the two Hobbit movies here will not only safeguard work for thousands of New Zealanders but it will also follow the success of The Lord Of The Rings trilogy in once again promoting New Zealand on the world stage,” John Key, prime minister, said.

The agreement comes as the country’s economic recovery is faltering. The central bank last month downgraded economic growth forecasts after parts of the country were badly damaged by an earthquake.

The $500m being spent on the production of the Hobbit films could be worth an additional $1bn to the economy, according to Cameron Bagrie, economist at ANZ, the bank. The first three films made almost $3bn at the box office.

But the Hobbit project has suffered a series of delays and the withdrawal this year of Guillermo del Toro, the celebrated Mexican director.

The films hit further trouble when the Australian-backed New Zealand Actors Equity union called for a boycott when it failed to secure minimum conditions for its members.

Although the industrial action threat was withdrawn, it prompted Warner to review the shooting location.

Sir Peter Jackson, the New Zealand-born director of The Lord of the Rings who will step in to replace Mr del Toro,
criticised the union for risking jobs.

Mr Key said that the government would introduce legislation on Thursday to clarify the distinction between independent contractors and employees working exclusively in the film industry. Warner will also be able to claim an extra $7.5m in tax rebates for each Hobbit film.

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