Film Subsidies—Act 2

There were many articles, letters and commentaries on the proposed changes to the Film Industry Tax Credit (FITC). Under the circumstances, it is surprising how little agreement there is on the relevant facts.

Blogs, newspaper commentaries, and emails responding to last week’s article in this space employed a remarkable diversity of answers to questions about industry spending and employment, and the likely impact of the budget proposal. My view is that there are two sources that should be treated as reliable.

The Canadian Media Production Association (CMPA), an industry body, produces a well-researched report on the economic size and impact of the industry. For the year ending March 31, 2014, it says that there were 1,140 direct full time equivalent jobs in Nova Scotia. This number is the one that should be compared to, for example, the 150 jobs growing to 500 that Royal Bank’s payroll rebate deal is targeting.

Using Statistics Canada methodology, the report projects that spinoff jobs from suppliers and indirectly from general economic impact added 1,590 more jobs for a total of 2,730.

The report estimates that the total volume of film and television production in Nova Scotia was $122 million.

Over the same period the province reports that, “… government spent $26.4M on the film tax credit. That year, the total value of film production in Nova Scotia that qualified for the credit was $66.8M.” This statement makes no assertions about the total size of the industry.  It simply states how much the province spent, using data the local players submitted in order to receive their rebates. If a Trailer Park Boys actor made $100,000, taxpayers provided at least $50,000 and quite possibly $65,000 of it.

The difference between the industry’s number for total size and the province’s number for what was subsidized is $55.2 million or about 45%. It would appear that this substantial portion of the $122 million of production, and related jobs, did not receive provincial subsidies, and therefore might not be vulnerable to a reduction in subsidies it is not receiving.

To be sure of that conclusion it would be helpful to know what those productions were but the industry has not responded to questions about what they might be. Local TV news, sports, weather, and current affairs programming probably make up a part of it, and are unlikely to be affected. On the other hand the infrastructure enabled by subsidized productions can also attract companies making outdoor commercials.

The province is far from blameless in all of this. Unlike so many other initiatives it was not informed by any publicly available analysis or discussion. The Broten report on tax and regulatory reform treated the FITC as a given and just suggested some tweaking. Political pronouncements by Liberals would have led the industry to believe that no significant changes were to be expected.

It was at best disingenuous to pretend that making 75% of the credit non-refundable, and therefore only available to offset corporate income tax, was not really a reduction. The province did not understand the importance of the refundable credit to industry’s ability to secure loans from lenders, or funds from federal sources.

The highly emotional reaction from the industry is therefore completely understandable. Without warning their business model within Nova Scotia was broken.

That does not make the model any more sensible for taxpayers. The FITC was still far richer than any other jobs incentive and held no prospect of the industry becoming self-sufficient.

Some commentators have compared this scenario with the NDP’s decision to cancel the fast ferry to Yarmouth. In one sense they are right—both governments failed to illuminate the problem before proposing a solution. The NDP’s ignominious retreat has resulted in a poorly managed and unjustifiably expensive response.

For the FITC the government and industry engaged in a series of meetings under a cone of silence. That is probably a good thing. In private both sides can step back from some of their less well considered assertions.

The proposed solution, following a model used in Alberta, is a simpler and more transparent grants program. It provides the $6 million that would have been available under the budget proposal plus $4 million out of the proposed fund for all creative industries. A broad range of costs are subsidized to a level of 25% (30% in certain circumstances).

So far this is within the government’s spending envelope as described in the budget but it does not include the animation part of the business for which discussions continue. That sector’s subsidies have been running in the $4-$5 million range.

Lots of questions remain. What happens when the $10 million budget is used up in a year? The messages from the government and the industry differ on how hard the cap is. How much more will be needed for animation, and how will it be provided?

At a never-ending 25% not just of payroll but of all in-province expenses the new formula for film will be vastly more generous than any other provincial jobs incentive. The program is transparent and makes it possible to control total cost. For the extra millions Nova Scotians will have to be persuaded that the contribution to our cultural fabric makes it worthwhile.

The Liberals are developing a track record of clumsy implementation of sound policy directions—flavoured tobacco products and health care unions being two other recent examples. The ambition is good. Implementation needs better discipline.

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