The Hobbit movies will be made in New Zealand after the Government reached a deal with studio giant Warner Bros.
Prime Minister John Key made the announcement on Wednesday night, following two days of talks with Warner Bros executives at his Wellington residence, Premier House.
The Government has offered Warner Bros bigger subsidies to make The Hobbit films in New Zealand, costing it another $NZ33.5 million.
It will also introduce legislation to clarify the difference between independent contractors and employees in the film production industry in New Zealand.
Doubt had been cast over where The Hobbit would be shot following a boycott by actors of the films. The ban was subsequently lifted by unions in New Zealand and the United States and an undertaking given that there will be no disruption.
Warner Bros had warned that its concerns over industrial relations issues in New Zealand could see it move the project to another country.
Mr Key said legislation would be introduced in Parliament on Thursday to clarify the employment situation of independent contractors and employees as it relates to the film production industry in New Zealand.
"The industrial issues that have arisen over the past several weeks have highlighted a significant set of concerns for the way in which the international film industry operates.
"We will be moving to ensure that New Zealand law in this area is settled to give film producers like Warner Bros the confidence they need to produce their films in this country."
Extra tax rebate
The Prime Minister confirmed the Government will widen the qualifying criteria for its Large Budget Screen Production Fund "to improve New Zealand's competitiveness as a film destination for large budget films."
John Key said The Hobbit films will each receive an extra tax rebate of up to $US7.5 million, depending on box office takings. This will increase the total rebate to about $NZ85 million.
The Government will also pay $US10 million towards marketing costs of the films as part of a "strategic partnership" to publicise New Zealand.
Sir Peter Jackson will direct The Hobbit films and one will have its world premiere in New Zealand.
Mr Key was unapologetic about committing more taxpayer money to the movies, despite saying earlier in the week that he would not get into a bidding war.
"I'm very pleased that we've been able to ensure that the winning combination of Sir Peter Jackson, New Line, Warner Bros, MGM and New Zealand as a whole will have the opportunity to produce these movies together. It's good to have the uncertainty over."
Mr Key says the deal has saved thousands of jobs and will help promote New Zealand as a film location and as a tourist destination.
Warners the winner, says Labour
The Opposition Labour Party wasted no time in responding to the Hobbit deal during a debate in Parliament on Rugby World Cup legislation on Wednesday night.
Labour MP Trevor Mallard acknowledged it was good news that the production of the films will remain in New Zealand, but was less than complimentary about the role Mr Key played in brokering the deal.
"One could say that he has been on his knees to Warners, Mr Speaker. The Prime Minister has been royally screwed by Warners, and as a result of that they will be laughing all the way to the Bank of America."
'Dangerous' to amend law
The Council of Trade Unions says a change to New Zealand labour laws to suit an overseas company would set a dangerous precedent and could challenge the concept of the country's sovereignty.
CTU president Helen Kelly told Morning Report said the law is already clear and a change would set a dangerous precedent, as thousands of workers may be moved from being employees to being contractors.
Ms Kelly says it appears the Government is being opportunistic in floating the law change amid the row over The Hobbit.
Wellington employment lawyer Peter Cullen says the Government could repeal the section of the Employment Relations Act which broadened the definition of an employee to include contractors.
He says a contractor is often paid more than an employee but does not receive protections such as sick leave or holiday pay.