Don Groves is a Deadline contributor based in Sydney

With The Wolverine, The Great Gatsby, Peter Jackson’s Hobbit movies and the Evil Dead remake shooting in the southern hemisphere, it might appear that all is rosy on the location front Down Under. But the reality is that as the Oz dollar has soared since 2010 – it’s currently about even with the greenback – all but two major Hollywood productions have bypassed Australia as a shooting location. With the New Zealand dollar trading at only 83 U.S. cents, the exchange rate there is better. And, after Hobbiton packs up, James Cameron will crank up the two Avatar sequels, filling a potential gap.

But a chorus of execs at major Oz studios, post houses and Ausfilm, the group that markets Australia as a location, warn that Australia won’t attract large-scale international productions unless the location tax credit is lifted to 30%. The Oz government is considering calls to raise the offset from 16.5% as part of a new national cultural policy that’s due to be announced soon. “It’s make-or-break,” says Fox Studios Australia chief exec Nancy Romano, who has two U.S. features potentially lined up for 2013, but only if the incentive is raised.

The Wolverine is based at Fox thanks to a deal that was clinched only after the government gave the producers a onetime grant of $A12.8M ($13M) which hiked the rebate to 30%. The Great Gatsby was also filmed at Fox’s facility, but it had enough Australian elements to qualify for the 40% tax break for local producers. After the Wolverine deal, there was a “significant increase in the level of interest from U.S. studios wanting to consider Australia for production if the location offset was raised,” says Ausfilm CEO Debra Richards. At that level, Richards tells Deadline, “We would be confident that there would be a continual flow of offshore studio production to be able to support the long term development and sustainability of the domestic industry.”

Ausfilm is in LA this week tubthumping the territory where studios are hungry for big foreign productions. Village Roadshow Studios on the Gold Coast has hosted local films Nim’s Island 2, The Railway Man, Bait and Mental. But president Lynne Benzie believes there has to be a steady stream of work from abroad to maintain the long term.

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In a bright spot, post work has been flourishing – that’s despite the disbanding of Kennedy Miller Mitchell and OmniLab Media Group’s Dr D Studios after Happy Feet Two flopped. Last year, the Oz government doubled the post, digital and visual effects incentive to 30%. Among the VFX projects handled locally were The Hunger Games, Ted, Prometheus, The Avengers, Warner Bros.’ upcoming Lego: The Piece Of Resistance and TV’s Walking With Dinosaurs.

Over in New Zealand, the biggest concern is domestic film production as producers point to a dearth of box office hits and declining revenues from international sales. South Pacific Pictures CEO John Barnett says, “Most of our films aren’t attracting domestic or foreign audiences. We need some hits to give the industry confidence.”

The government is reviewing the Large Budget Screen Production Grant which offers a 15% rebate to productions that spend at least NZ$15M ($12M), and the Screen Production Incentive Fund, which gives grants of 40% to Kiwi films and 20% to TV productions. The New Zealand Film Commission expects to invest in about 12 films this year. “The issue for all funders worldwide is the increase in the number of people applying and a reduction in money they bring with them to the table, therefore increasing calls on the cash we agencies have,” says the Commission’s Graeme Mason.

As Kiwis ready for the November 28 world premiere of The Hobbit: An Unexpected Journey in Wellington, the capital city has adopted the moniker “The Middle of Middle-earth.” But it didn’t come easy. In 2010, the government changed the labor laws to resolve a union dispute over pay and conditions that threatened to derail the production, and gave Warner Bros. a $25M tax break. Referring to that deal, one prominent Kiwi director recently suggested to Deadline that the government looks more favorably at big-budget Hollywood productions rather than focus on the smaller local filmmakers.