Another Climbdown

Posted May 8, 2015

The film and animation industry’s ability to tell a story is never more creatively employed than when defending their uniquely generous handouts from taxpayers. Consider two scenarios.

CGI is a technology company that employs about 400 talented Nova Scotians with a payroll exceeding $30 million. They mostly spend their days on computers, finding creative ways to help businesses to manage and use data. They do not create much extra work for limo companies or hair stylists, nor do they frequent bars and upscale restaurants more often than others in their income range.

In April 2014 they signed an agreement with Nova Scotia Business Inc. to further grow their presence here by up to 450 jobs over seven years. Over those seven years the added payroll would be $126 million, for which the rebate would total $10.8 million.

The rebate is only paid when and if the job targets are met. If no jobs are added no rebate is earned. At the end of the seven years the rebates are finished but there is reasonable hope that the jobs will continue because of the skills the team members will have built and their ability to work together to solve customer problems.

DHX is a media company that employs 155 talented Nova Scotians. They mostly spend their days on computers, finding creative ways to tell stories. They do not create much extra work for limo companies or hair stylists, nor do they frequent bars and upscale restaurants more often than others in their income range.

Like the rest of their industry they were distressed by the government’s sudden announcement of a change in their subsidy programs. DHX made it clear that those 155 jobs would disappear instantly if the government persisted with its plan. After prolonged discussions the government has announced a new arrangement.

It pays a subsidy based on salaries that can work out to a third or more of total production costs. At a guess DHX’s share might be $3 million per year out of an expected total program spend of $4 million. Unlike the new arrangement for film with actors it represents no material reduction from previous spending. 

The planned spending for the whole sector on budget day was $12 million (not including another $7.5 million for digital media, whose generous program has not changed). All of the $12 million has already been committed to film involving actors, and a sliver of support for other creative industries. So spending on animation will represent an excess of more than $4 million over plan, with no transparency, no cap, no expectation of growth, and no hope of eventually becoming self-sustaining.

During a seven year period CGI can receive $10.8 million for growing from 400 to 850 jobs. Over the same seven years DHX will receive more than $20 million from the province, plus more from the federal government, for just maintaining 155 jobs. That nice contribution to DHX’s bottom line is vastly more than the provincial taxes the employees and DHX will pay.

The industry members who provided emotional testimony to the Public Accounts committee on Tuesday are probably unfamiliar with these numbers. And even if they were, their concerns are understandable, because other provinces have equally unsound incentives. Most of their jobs would move to those provinces if the government persisted with its original plan.

Dr. Michael Geist is a law professor at the University of Ottawa where he holds the Canada Research Chair in Internet and E-commerce Law. He has written a scathing analysis of these subsidies and was able to unearth a confidential report to the Ontario government which points out the many weaknesses in their policy. Ontario nevertheless has maintained its program with only minor trimming in the recent budget.

Our government is faced with a choice. Either cave in and come up with something like Ontario (arguably the worst governed province in Canada for the past decade), or be willing to say goodbye to a couple of hundred jobs in computer animation. They have chosen to cave in, to an even greater extent than on the other part of the film business.

In the context of a $10 billion budget the $4 million spend is not a lot. But it makes other tough choices far more difficult to defend.

The departments of community services, environment, health and wellness, natural resources and seniors are all seeing reductions in grant funding in the 2015-16 budget. Community grants for mental health and addictions were reduced from $1 million to $600,000. The recreational facilities development fund is reduced by $1.3 million from $2.3 million. The Natural Resources Department’s mining incentive grants have been cut by $150,000 and the government has deferred action on its commitment to provide mining the same fuel tax treatment as other resource industries. Economic development staffing was gutted.

Seniors, miners, and the mentally ill lack the organizational and communications skills employed by the filmmakers. So those cuts pass without much notice.

Meanwhile government should hope that the animation business does not grow. It should focus instead on industries that make a positive economic contribution to the province.

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Most Recent Comments

  • Although, I do not always agree with your articles, I do believe that you are spot on with your opinion piece in the May 9, herald piece.

    I have known many people over the years in the “industry” and they are laughing all the way to the bank with taxpayers monies.

    I have written to Diana Whalen on two occasions, but the voices in the film and animation industry are clearly much louder than mine.

    I sincerely hope Ms Whalen reads and heeds your article

    Barbara | May 12, 2015

  • The fact taxpayers spend something like $30M to get $25M every year is troubling and we should continue to press our “leaders” to solve these problems.
    However in the total scheme of things it is small potatoes.
    We are talking about a budget of something like $9 Billion. If one reviews the government’s budget assumptions for employment levels, wage growth, and expenses; combined with the government’s ability to manage and execute, Nova Scotians should be very concerned that this budget is not only high risk but beyond the governments ability to attain. By March of next year I suspect this $5m net loss will be lost in substantally larger deficits.
    It is time to focus on the much larger picture. If the premier wants to move forward it is time to move the Minister of Finance, but the problem is with who??? There is a significant difference between repairing refrigerators and managing a $9B budget.

    Barry H | May 11, 2015

  • One would want a clear picture of where all the indirect and induced effects were being allocated, and how the loss of GDP activity balances against revenues, loss of income or population, whatever.

    But in any case, until there are large reductions in multiple provinces of existing programs, then either it is determined that some sort of competitive program is seen as beneficial, or the government should frankly say that Nova Scotia is withdrawing from the broader film and animation industry, acknowledge that this implies the loss of the sort of better-known productions and jobs currently here, say “goodbye but we can’t afford you’, and perhaps put in a small fund to retain a minimal industry for captive, local or low-budget stuff, a la Saskatchewan. Hopefully with a transition period!

    Study, decide, disclose and cleanly execute whatever decision is made, but the current government (cabinet and high-end civil service) action has been an embarrassment no matter what position one has..

    David | May 10, 2015

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