Special Deals For Favoured Industries Should Be Curtailed
Posted December 7, 2018
Finance Minister Karen Casey is seeking advice from Nova Scotians in preparation for her next budget, so the province can “continue on a financially sustainable path with investments in programs, services and infrastructure that are important to Nova Scotians.”
There will be pressures for more spending for family physicians, schools, roads, mental health services, and many other areas. Taxes are already too high and should be reduced, especially for low income earners. Offshore royalties are finished. Where can money be found?
Some of our job creation spending cannot be justified economically.
As a basis for comparison, consider the payroll rebate program administered by NSBI. These typically run over five years and provide employers, large or small, with payments based on the increase in payroll associated with new jobs.
For example, Manulife can receive up to $9.9 million on $140 million of salaries associated with 600 new jobs. If the job growth is smaller, the payment, about 7% of salaries, will be reduced proportionally.
Likewise Dylitics, a data analysis firm, can earn up to $.38 million, or 6.5% of $5.88 million in salaries, if it creates 30 new jobs over five years.
By way of contrast, consider film subsidies. Typical is the incentive given to the producers of “Mr. D”. For their eighth and final season they will receive $1.36 million, about 29% of the eligible Nova Scotia expenditure of $4.70 million. This is in addition to federal incentives.
The publicity piece produced by Screen Nova Scotia proclaiming the resulting benefits is almost comically deceptive. It claims that the production “created” 1,425 jobs, about two thirds of them in Nova Scotia.
What is not stated is that the average job lasts perhaps two months, and they count the jobs again every year. For this, they receive about 30% of the eligible Nova Scotia expenditure every year, with the certainty that the 175 seasonal jobs (120 of them Nova Scotians) will not recur in the absence of continuing incentives.
This is more than four times the 7% payroll rebate program pays on growth in full-year jobs. In those cases, there are good prospects that the jobs will continue long after the five years’ of rebate payments have concluded.
The government initially put an annual cap of $10 million on this unwise expenditure, but have since lost control. This year’s budget is $28 million.
The government’s system for films is not the worst. At least their numbers are visible. Not so for Digital Media and Animation. Those payments are administered through “refundable tax credits,” which are a back-door mechanism for doing handouts.
Because it is through the tax system, there is no transparency on who is getting the money or how much they are getting. The formula for these is very complex, but appears to be roughly as generous as that for films.
As with film, these payments continue only if the jobs do. Since it is a formulaic entitlement, the government has no ability to control how much is spent.
In 2017-2018, the budget estimate was $8.2 million, but the actual was more than three times as much at $26.2 million. The current year estimate is $31.5 million, but the actual could easily be much higher.
There are many important employers in other industries whose employees sit in front of a computer all day. None of them is eligible for anything remotely as generous as this program.
This commentary is not meant to be critical of the film and digital animation workers or their employers. Nova Scotia’s incentives are like those available in dozens of North American jurisdictions. If we don’t have them, we will lose many of the workers to other provinces.
Nevertheless the government should gradually reduce the caps for each system to $10 million per year, and should move to a grant system for Digital to get control and transparency.
Two other areas need spending to be limited.
The Yarmouth ferry cost about $16 million, or $800 for each of the 20,000 arriving visitors in 2018—less than 1% of Nova Scotia’s total visitors. Many of them would have come by other means if there were no ferry.
The jobs supported are low wage and seasonal. There must be a better way to spend money in support of Yarmouth’s economy.
Profits last year at the Nova Scotia Liquor Corporation provided more than $230 million to pay for health care, education, roads, etc. The profit margin is close to 40%, but almost none of that margin is charged on local industry product sales.
Giving up that margin cost $12 million two years ago and is likely to cost at least $18 million this year. Government should put a ceiling on how much benefit any one producer can realize and should gradually reduce the subsidy to keep the overall cost under control.
None of these are easy choices to make. But postponing will only make it worse as the costs spiral out of control. The government must exercise the same backbone that it showed in controlling public sector wages.
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