Maureen Bader: Hollywood wins big in B.C. corporate welfare lottery
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.
Jun 1, 2010 at 3:54pm
Please, stop the Canadian film credits with all due haste! We Americans would REALLY appreciate it, since so many jobs are going to Canada. in the visual effects industry, companies lie Digital Domain are putting a lot of resources into BC...stop the handouts and they will close up shop there and maybe send the jibs back to the US. well, probably England or some other place with tax credits actually.
But still - stop the credits! You don't need the jobs, obviously.
Jun 2, 2010 at 3:45am
Hey Lee, check out this quote:
"Visual effects artists typically work with no contract, no paid vacation, no benefits, and often no paid overtime. And because of the nature of the work health problems such as obesity, tendinitis and carpal tunnel syndrome are common."
Those are YOUR words in an article on the huffington post a few months ago. Why exactly are we looking to create those kind of jobs?
Here you say "stop the handouts and they will close up shop there and maybe send the jobs back to the US. well, probably England or some other place with tax credits actually."
Yet in your other article you say "visual effects artists currently work under constant threat from producers of having their work sent off to India or China." (which has already been happening for years in Vancouver.)
I say keep the tax credits for companies that keep the jobs in Canada, but screw the globalist sweatshop VFX middleman operations, they need to be taxed into bankruptcy.
glen p robbins
Jun 2, 2010 at 9:25am
A couple of things Maureen. First, I note that in your piece -- as seems to be the case in virtually every theoretical political/economic discussion includes one study or another -- enough on the "studies" -- they ultimately lead to more captive theory by entrenching one side of an argument over another depending on the mindset of the 'deliverer' of the case/message. After reading the studies -- what is your conclusion from the perspective of the Canadian Taxpayers Association?
How would the comparison of the 'subsidies' for the film industry which I note includes some good incentives (if we assume any incentive to corporations is 'good'), to the film industry as compared to the subsidies to the oil and gas industry in British Columbia, which I understand (from my studies) to be in the 300-500 million per year?
I would like to see a comparison and contrast of both of these subsidized industries by Ms. Bader with her ultimately selecting 'a winner'. For instance -- based on this article -- a proponent of the film industry credits/subsidies would say that many good paying jobs come with the industry. Can the same be said for the hundreds of millions to oil and gas?
In addition, can we social cost account for the --carbon footprint-- of both of these industries and attempt to theorize/quantify this on a comparison basis? When we produce work like I am suggesting we become more efficient in our ability to make choices with scarce resources -- otherwise an expensive study ends up supporting every government policy speculation to nominal abstracts --- rather than producing good comparisons to help flesh out how we perceive these businesses who receive tax payer subsidies
The obvious third wheel to this discussion -- is whether or not ALL subsidies (tax credits) etc. should be banned.
Jun 2, 2010 at 9:07pm
sure thing Lee , as long as the New Mexico ones that give you your quality of life also get stopped immediately.