What is it with politicians and the film business? Across North America, politicians line up to throw other people’s money at Hollywood millionaires, even though those other people might have other ideas about how to spend their money.
Handouts to business help politicians create the illusion they are “doing something” to benefit the economy. However, there is no evidence that tax handouts to any business, let alone to a film business, create a net benefit for the economy. If government wants to “do something” for the economy, it should get out of the way and reduce red tape and punishing taxes, and let all businesses compete on a level playing field. Sure, a particular business or industry benefits from money picked from other people’s pockets, but that just leaves other people with less to spend on what they want, and this reduces demand—and jobs—someplace else.
The film industry and its lobbyists have a knack for easy riding on the backs of taxpayers by setting one government against another. Right now, taxpayers are confronted with this very scenario.
When the Ontario government increased its film tax credit, the B.C. government followed suit. Ontario expanded its production services tax credit for foreign producers from 25 percent of labour costs to 25 percent of all costs. The B.C. government responded with a barrage of boutique tax changes that would probably make a film-industry accountant’s eyes light up but any non-accountant’s eyes glaze over.
For example, it created a new interactive digital media tax credit of 17.5 percent of labour costs for the development of video games. It then also increased the labour tax credit for foreign producers from 25 to 33 percent, the qualified labour expenditure cap from 48 to 60 percent, and the digital animation and visual effects tax credit from 15 to 17.5 percent. All told, film, television, and production services tax credit handouts will cost B.C. taxpayers $153 million in 2009 and that will rise to $183 million by 2012.
In reality, these tax credits are nothing more than corporate welfare. Film companies don’t have to actually pay any taxes to get these “tax credits”—all they have to do is spend. For example, if a film company applies for a tax credit of $10,000 and doesn’t owe any income tax, it gets a refund of $10,000.
Film welfare recipients say if we cut off their handouts, the entire industry would collapse and thousands of jobs would make the hills somewhere else come alive. This would, according to them, reduce the government’s overall tax take. Yet, a study done in 2005 for the B.C. Ministry of Economic Development showed that if all tax credits were eliminated, film production in B.C. wouldn’t disappear—it would decline by 15 percent.
And these handouts are costly. The study also showed that in 2004, the film and television industry paid $8.7 million in corporate income tax. Meanwhile, the cost of the film, video, and production tax credit was $70 million.
Film welfare recipients counter this tax vanishing act by saying their employees pay income tax, so the tax take from the industry is really much higher than just the corporate income tax take. But much of the employment in the film industry is displaced from other industries, so there is no net gain in tax revenues. As the 2005 study showed, if an electrician moves from another industry to the film industry, there is no net gain in tax revenue for government.
Politicians have a love affair with the film business, but just like any bad movie, it must eventually to come to an end. All government can do, and should do, is create an attractive investment climate and a level playing field so businesses, including those in the film industry, can compete for our dollars in a fair environment.
Instead of letting the film industry hold taxpayers hostage, the government should be prepared to say, “Hasta la vista, baby.”
Maureen Bader is the B.C. director of the Canadian Taxpayers Federation.