The Government looked at creating a new tax for large technology companies like Facebook and Google to raise revenue for local media companies.

Instead, Cabinet opted to legislate a bargaining “backstop” forcing large technology companies
to reach an agreement with media companies for the use of their content.

Legislation for this model, similar to one currently operating in Australia, is expected in Parliament shortly.

A regulatory impact statement (RIS) on “recognising news media’s value in a digital environment”, showed officials at the Ministry for Culture and Heritage-Manatū Taonga looked at two other options to help media companies struggling with the loss of advertising revenue.

The first was a levy – a tax – on digital platforms like Meta (the owner of Facebook) and Google to raise revenue that would be “distributed to news media organisations by a central authority”.

The other option was to ring-fence revenue that was raised on multinational corporates for use by media companies.

The Government is in the midst of a long-running OECD-led programme on ensuring that large multinational corporations pay an appropriate amount of tax in the jurisdictions in which they operate.

It is meant to put an end to large corporates shifting their profits into low-tax jurisdictions to avoid paying higher rates of corporate tax in countries like New Zealand, where the corporate tax rate is 28 per cent.

The changes, when they eventually come into force, will mean additional revenue for the Crown, which the RIS contemplated ringfencing for distribution to media companies.

Broadcasting Minister Willie Jackson told the Herald that “all options in the RIS were considered”.

“However, the decision to progress with legislation to support New Zealand news media entities is based on the advice provided by officials. Commercial bargaining legislation was considered to be the best option,” Jackson said.

“Commercial bargaining legislation will act as a backstop that empowers news media entities to seek their own pathway to financial sustainability. The legislation will provide immediate support to the sector by incentivising voluntary commercial deals to be struck”.

He said the legislation was on track for introduction “in the coming weeks”.

Officials said the levy option would require Cabinet to identify both the digital platforms that would be subject to the tax and how much they should pay.

“[A] fixed rate based on earnings in the New Zealand market, or a formula that recognises the volume of New Zealand-based views, content or attention paid to respective qualifying digital platforms,” were two suggestions.

This funding would need to be funnelled to an entity like NZ on Air to distribute, either using “a contestable funding model similar to the Public Interest Journalism Fund” or “a mechanism to deliver funding directly to news media organisations via a formula that could take into account the size of media organisation”.

The RIS warned it was difficult to model the amount of revenue this model would raise, and the Government would need to be careful that slapping a tax on these firms would not violate New Zealand’s trade obligations, which can frown upon taxes that target specific sectors.

The second model is slightly different. Instead of creating a whole new tax, it would simply use the increased revenue earned from closing existing tax loopholes.

Officials were less keen on ring-fencing money by closing tax loopholes that benefit multinationals. In general, Treasury and IRD avoid ring-fencing revenue for specific tasks. There was also the question of fairness, as the OECD tax work won’t just hit digital services companies, but other large corporates who have little relationship to the decline in advertising revenue for news media.

“A proportion of income from the OECD tax process in New Zealand could potentially be ring-fenced and used to support news media organisations,” officials said.

“While it is not common for tax revenues to be ring-fenced for specific purposes, there are examples including the fuel tax system which goes into the National Land Transport Programme to support infrastructure and maintenance,” they said.

Officials seemed less keen on this approach because tax revenue traditionally goes into “the general tax pool” for spending “across the breadth of government priorities”.

The RIS noted the challenges for media companies were stark.

“Census data reveals the number of journalists employed in New Zealand fell from 4284 in 2006 to 2061 by 2018.

“More recently, the New Zealand Media Ownership Report estimated that during 2020, approximately 637 jobs disappeared from the New Zealand media industry,” it said.

It estimated that between 2011 and 2020 “newspaper advertising revenue in New Zealand fell from $533 million to $210 million”.

Digital advertising increased in that time, but not enough to make up for money lost.

“Digital advertising generates only a fraction of the revenue for news media organisations that traditional advertising produced in the past, both because it can be sold in more discrete units (and therefore more cheaply) and because multinational digital platforms provide greater and more targeted reach to advertisers.

“Since 2003, New Zealand newspapers have generated $1 in digital advertising for every $4 lost in print advertising,” officials warned.

Media companies, including NZME, the publisher of the NZ Herald, have successfully bargained with some tech companies like Google to pay for news.

The Government’s legislated bargaining assists this process by creating a backstop if negotiations fail.