Australia's Government has been publicly lambasted for prolonging confusion about whether tax laws actually allow Australian investors to get relief when they support offshore productions such as Moulin Rouge that shoot in the country.
The outburst, by New South Wales Treasurer Michael Egan, coincided with the revelation that the Australian Tax Office (ATO) has rejected the rebate submissions of those who supported Moulin Rouge.
"The Premier and I have written to the Federal Government four times in 18 months on this issue and I raised it at an Industry Ministers' meeting in April this year," Egan said. "Yet the matter has still not been clarified. The Howard Government's policy on tax incentives for film is confusing, vague and slow."
He referred to Warner Bros.' warning in June that it may withdraw projects due to shoot in Australia as a result of The Red Planet's negative tax ruling.
The ATO's decision would be unlikely to affect the production of the two Warner-backed Matrix sequels, however, which are scheduled to start filming at Fox Studios in September, as they are already booked into the facility, as is the next installment of the Star Wars franchise.
While the ATO has not revealed its reasons for the decision, observers claim that there is a growing concern about the exploitation of the tax act, which allows a film's backers to claim their investment as a tax write-off.
Moulin Rouge financiers still have recourse to appeal against the ATO's decision and failing that may refer the matter to the Federal court.
Industry insiders have warned that the ATO's decision could affect the viability of Australia as a production location, as well as threatening thousands of jobs.
The ruling comes at a time when other countries are busy introducing tax incentives in order to attract lucrative international productions.
Even the US has moved to establish tax concessions, in an attempt to stem the tide of so-called 'runaway productions' that exploit foreign tax incentives.
US senator Blanche Lincoln introduced a bill in congress on 31st July that would give film and TV producers a tax credit offsetting production wage costs.
The bill aspires to emulate laws in the UK, (Screendaily March 7, 2001), the Netherlands (Screendaily June 15 2001) and Canada, that boosted local production activity during the 1990s.
The Australian Prime Minister has given the go-ahead for a submission to be presented to Cabinet that proposes either new film-specific legislation or amendments to the current general tax rules. This is on track to occur this month following consultations with industry.