Why New Zealand's billion-dollar video game industry is being stolen by Australia

Video games could be our next billion-dollar industry, but Australian tax incentives threaten to stunt the growth of the sector in New Zealand.

The rapidly growing industry has stalled as some of the country's biggest game makers eye up opportunities across the Tasman.

New Zealand Game Developers Association chairperson Chelsea Rapp said game development was quickly becoming one of the country's most valuable industries.

"We grow, on average, between 20 and 30 percent every year," she said. "We're on track to be a billion dollar industry by 2026."

Video games were rapidly overtaking some of New Zealand's biggest exports.

"I think we're the fastest growing export in New Zealand over the last two years," Rapp said. "As of last year we actually bring in more revenue than wool."

RocketWerkz is one of Auckland's largest game developers. Its chief operating officer Stephen Knightly said the industry's massive success had flown under the radar.

"I think the games industry is one of our hidden gems," he said.

"It earns [more than] $400 million a year, it wins global awards, it's bigger than Australia's entire games industry."

"If we can just give it the support it needs, it's an absolute winner for the New Zealand economy."

But he feared that gem could be stolen.

"The industry had been growing quite nicely, but in the last two years we've seen that growth just stop and plateau. Largely because Australia is coming in with crazy salaries and poaching the senior staff from those teams," he said.

Australia offered an industry-wide tax offset of 30 percent. That was a massive incentive on its own, but some states pushed it even further, returning 45 cents on every dollar.

That incentive, Knightly said, was a massive problem.

"Every major game studio in New Zealand is complaining about Australians approaching their staff and trying to poach them," he said. "That's been going on for more than a year now."

Wellington studio PikPok employed more than 200 people. Chief executive Mario Wynands said some of his most experienced staff had been poached.

"We've lost, just to Australia alone, 15 people since the start of last year," he said.

"That's pretty significant."

The competition for senior staff also made it harder to foster young talent.

"For every senior person you have, it makes it so you can hire between three and five junior people underneath that person," Rapp said.

"So not being able to find senior talent also means [you] can't take on some of these recent graduates."

It was not just workers being tempted over the Tasman. PikPok itself had been approached to open a new office in Australia.

"I love New Zealand, the last couple of years have been really tough though," Wynands said.

"Now, looking at what Australia is offering, we are talking to the different states about what the opportunities might be."

Knightly told a similar story. "We met up with them when we visited Queensland and Brisbane, checked out locations, visited a university.

"We absolutely want to keep the team we have here in New Zealand, but our choice now is the next 50 jobs we create - we have the ability to choose where we put them, and if [Australia] gives us 45 percent back ... it just makes sense."

Rapp said the tax incentive was strangling New Zealand's games industry.

"Because New Zealand and Australia essentially have a shared labour market, the Australian incentive has a very large negative effect on the New Zealand games industry," she said.

"If we don't do something this year, for the first time in its history the industry is going to contract, and those jobs won't come back."

She said it was frustrating to see the film industry receive incentives, because it had so much crossover with the games industry.

"You've got writers, artists, creative directors, the VFX artists, and the designers," she said.

"You're seeing things like The Last of Us being turned into a critically acclaimed TV series, they share a lot of the same skills and talent pool."

But Knightly said the games industry had one important difference over film and television. "It's New Zealand owned. The headquarters are here, not in Hollywood," he said.

"So the profits get recorded in New Zealand, and that just makes the business case so much stronger.

"It's not just about the jobs, it's not just about the economic exposure, it's about creating long term value."

With better incentives, Rapp said the industry could soar.

She said other countries had already seen that potential.

"We're light years behind, a really good example is Finland. They created the first game development incentive and now their games industry is worth $5 billion every year," she said.

"They're about the same size as New Zealand, so imagine the difference it would make if our industry was worth $5 billion instead of half a billion."

Rapp hoped a competitive incentive would be part of Budget 2023, which will be announced in May.