A Business Focused Government

Posted April 17, 2015

Last week’s budget had considerable substance and was surprisingly decisive. One of the key themes is reflected in the mandate and scope of the new Department of Business.

It is smaller than the predecessor Department of Economic and Rural Development and Tourism (ERDT), in part because of activities being transferred elsewhere but also because its function has changed. Much of the previous effort was focused on transactions, which are now entirely delegated out to NSBI, Innovacorp and, someday, the new Invest Nova Scotia Board.

Rather the new department will focus on strategic measurement and guidance across government. Programs in support of economic development happen in many departments, including Agriculture (herd health, crop insurance, farm loans), Fisheries and Aquaculture (site mapping, veterinarians, loans), and Energy (subsidies for renewables, offshore mapping). Of course the big money has been in ERDT and the related agencies.

What has not happened until now, but is promised in the new department, is examination, with a consistent lens, of the spending in different departments, so that the costs and benefits of each investment are evaluated on a similar basis. Likewise the regulatory activities of different departments (for example Labour and Advanced Education, Environment, Natural Resources) will be examined for their compatibility and impact on business potential.

The Department will also incorporate the new Office of Regulatory and Service Effectiveness, mandated to implement the sixteen point regulatory reform agenda recommended by Laurel Broten.

Minister Furey tells us that, “All government departments and agencies will follow its leadership.” This substantial agenda is to be accomplished by a lean department with only 36 staff. Catherine Woodman, CEO for almost a decade at the Halifax United Way, and a key executive at Maritime Life for a decade before that, has been recruited as Deputy Minister.

The Department sets a standard for others to consider. For example, all operational matters for hospitals having been downloaded to the two health authorities, one might wonder why there is an ongoing need for 430 staff in policy and administration roles at the Department of Health.

The Department of Business mandate is largely aligned with the recommendations of the Ivany report. It will track progress toward the Ivany economic development goals.

Some key matters are yet to be resolved. It is not yet clear which functions will be discontinued to enable the slimming down and consequent $40 million of ongoing savings. The mandate of Invest Nova Scotia and its funding requirements are not yet determined.

That said, this is bracing stuff and every bit as ambitious as the Action Plan for Education, released in late January. As with that worthy agenda what ultimately matters is not the ambition but the achievement. Current events can have a way of intervening.

This week it is the film tax credit. The industry has produced and directed a well-crafted campaign against the announced changes, with a strong supporting cast of workers and interested citizens. In 2013-2014 the industry paid $40 million in qualifying wages to Nova Scotians, for which the province paid incentives of $26.4 million (about two and a half times the grants to all other artists and arts organizations).  Over a decade that would be $400 million in wages and $264 million in subsidy, about the same as the hugely unpopular handout to Irving for the shipbuilding contract. Under the present regime these subsidies never end.

By way of comparison the oft-cited Royal Bank deal will cost $22 million over ten years for $200 million in wages. And at the end of ten years there would be a reasonable prospect, though not a certainty, of the 500 jobs continuing without further subsidy. If a twin deal was done with another bank the two would match the $400 million of wages by the film industry, for $220 million less in subsidy.

A good argument can be made that the film industry adds to the cultural vibrancy of the province and for that reason it makes sense to provide greater financial support. It is perhaps in this spirit that the government has proposed $6 million extra annually for film and other creative industries. But no credible argument has been made that an extra $220 million (over ten years) is justified on economic or cultural grounds.

The problem is the availability in other provinces of equally uneconomic programs, against which Nova Scotia will become uncompetitive. Perhaps the industry can find a way to pay more of its income taxes in Nova Scotia, thereby earning more credits. Perhaps the government’s proposal can be reworked to provide greater leverage on the money being spent. Maybe a little more can be squeezed out of government. It will be great if a way can be found to keep all or most of the industry here.

But to continue with the existing program or anything close to it would make a mockery of the Liberal claim to be doing things differently. The new Department of Business is intended to be the focal point for disciplined thinking on economic development spending. Don’t disable it at birth.

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  • It strikes me as strange that an industry is allowed to sit back and defend their right to a subsidy based on the government did not do the proper economic study. To me it is the responsibility of the industry to put forward a yearly business plan to the government that puts forward a plan that shows how the taxpayers are going to get their money back, how there will be added financial benefits that contribute to the services consumed by the employees of the industry, what benchmarks and measurements are or will be in place to prove the taxpayers are being rewarded for placing their trust and their money in the industry.
    If the industry went to the bank and asked for a yearly loan of $26M, the industry would have to make a proposal that gave reasonable assurance to the financial institution would get their money back and would get a return. It would not be up to the bank to make their case or submit numbers for them.
    It appears the industry knows governments and taxpayers are an easy mark.
    Bill F. there are too many “maybe” and “perhaps” in your statement. That can also mean Maybe not and perhaps not. We can all make those kind of statements. I am disappointed to read that you think an industry that sits back feeling entitled to tax is a “disciplined thinking approach”. To me it is neither disciplined or thinking, but displays a reliance on taxpayers that borders on greed and incompetence.
    The industry needs to make a detailed proposal to the government and to taxpayers asking us, repeat asking us, for our financial support and describing how we get our money back. Maybe their case is so weak they know they cannot justify such a case. And that is my contribution to the list of maybes.

    Barry H | April 21, 2015

  • The question you should ask is what is the best return on investment. The measure should take into account all the benefits that such investments bring to the province.
    The CPMA states that the film production in Canada was worth 5.8 billion which included 1.8 billion in foreign production. Film production is a project to project business, more like construction than a tire plant or call centre. Production will go to where it is most cost effective. In an era where broadcast licenses are going down, production will go to one of the 37 states, incuding California, or provinces that offer some sort of incentive in order to finance the projects. If a province wants to attract some of the billions spent in production, it will do so through offering some kind of incentive.
    The Nova Scotia economy is at best stalled and at worse in decline. It is critical that the government create a climate to somehow generate more economic activity. The film production community argues that the fully range of the money that is brought into the Nova Scotia economy and the activity it generates more than offsets the investment by the province. The full range of economic activity needs to be properly measured. This needs to include all the many businesses that receive a portion of their income from film production. These range from vehicle rentals, building suppliers, furniture and fabric stores, hotels and landscapers. Currently, hotel nights paid by film production are seen as credit to the tourism industry. There is also money going to office rental, location fees. All part due to the spending of the production money coming into the province. What is harder to quantify is the impact on things like tourism. The CURSE OF OAK ISLAND was the most popular show on the American History Channel this year, the most watched non fiction show on Tuesday nights. Hope Swimner’s wildlife rehabilitation centre is featured in HOPE FOR WILDLIFE. This show is seen around the world and she credits it for the over ten thousand people who visit each year and the million dollars that was raised for a new building. As reported in the Chronicle Herald:
    Many guests mention the Hope for Wildlife TV show. One woman tells Swinimer her family watches the show “religiously.” Filming for the fifth season began this past summer. Swinimer admits the show is “a little hammed up,” but it brings money into the rehab centre and children from all over the country write letters asking about the animals. A volunteer tells me of meeting people in South Africa who first heard of Nova Scotia on the show, which airs in more than 20 countries.
    Also hard to quantify is the stimulation of a vibrant creative economy and the businesses that have spun off from this activity. If Nova Scotia is to dig itself out of debit, it needs this kind of activity. Activity that generates revenue across many businesses and in different parts of the province. I doubt that a future of call centres and box stores serving retirees will turn the economy around.

    Bill Fleming | April 21, 2015

  • To assess the value of the industry you need also to be looking at the economic impact of the production sector. if we consider the 139 million of money coming into the province, levered by the tax credit incentive over one year, then that would be 1.39 billion in production over the ten years. Rather than a cost, the tax credit acts as an incentive attracting money from away and creating significant spending and economic activity in the province. When all the metrics are added, the tax credit may be merely revenue neutral costing the tax payer nothing, or perhaps it generates more than it costs when all factors are added in. One would expect that an in depth study of the economic impact of the film tax credit would have been done. Would this not be part of an informed approach? We should expect a knowledgeable impact study to access best kind of change to increase the leverage while still attracting production investment to the province before the changes are made. Leaving out all the aspects of economic activity and other benefits generated by film production is irresponsible; certainly not part of a disciplined thinking approach.

    Bill Fleming | April 20, 2015

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