April 28, 2015

Tax credit where credit is due

Furious DRebel Blogger
 

Nova Scotia's growing film and television industry may have narrowly dodged a bullet.

A few weeks ago the provincial government released their annual budget, and one of the big items was the slashing of the Nova Scotia Film & Television payroll tax credit, a move that threatened to destroy an industry that in the last twenty years had grown from $6 million a year to between $125-$139 million a year.

Basically before the budget if you were a film/TV producer in Nova Scotia you could claim 100% of your payroll expenses as a credit toward your taxes. After the budget that amount was slashed to 25%, which threatened destroy the profit margin and competitive edge of many Nova Scotia film/TV companies. Naturally those who make Nova Scotian film and television protested, loudly and passionately, and even got rapper Snoop Dogg to back them to save his favourite show, Trailer Park Boys.

Recently a tentative agreement was reached to save the industry and end the stream of bad press bombarding Nova Scotia's Liberal government. The tentative deal will keep the credit/rebate at 25% but expand what qualifies for it from just payroll to include all of the company's expenses.

Why did this new deal become necessary?

Why did the Liberal government come close to destroying one of the few economic success stories the province could boast of?

The ruling Liberals fell victim to three fundamental fallacies that threatened to do more harm than good.

FALLACY #1: THE TAX CREDIT IS A SUBSIDY:

If you believe that, you couldn't be more wrong if you climbed Mt. Wrong when you were supposed to be exploring the Grand Canyon. To understand why you need to know exactly what is a subsidy, and what this tax credit really is.

A subsidy is when you go to the government and ask them to give you money in exchange that you will do something with that money that will allegedly benefit the province. If the ruling party likes you, they will give you that money. If the ruling party doesn't like you, you don't get a dime.

The Nova Scotia Film and Television Tax Credit was basically a bit of relief on the taxes paid by businesses in the film and television industry for the privilege of creating taxpaying jobs based upon the size of the payroll the business is shelling out. Under the old system film & TV businesses in Nova Scotia got 100% of their payroll taxes back, to the tune of about $24-$25 million a year. Under the new system, they will only be able to claim a 25% credit on their payroll taxes, which will pretty much kill the profit margin and competitive edge for many Nova Scotia based film and television companies.

So the credit is not really a subsidy, it is, in fact, a relief from a tax that exists not so much to earn revenue, but to suppress wages and job creation.

FALLACY #2: THE TAX CREDIT COSTS NOVA SCOTIA MONEY:

As I said, this not a subsidy, it's a form of relief from a counterproductive tax.

But what about the revenue, the roughly $24 million, that the Nova Scotia government "loses" every year, isn't that an expense when you come down to it?

Well, probably not if you crunch the numbers.

Remember, the Nova Scotia government regularly and gladly drops tens of millions of dollars on a "make-work" project like a customer service call centre that will create about 100 jobs until the company running it goes out of business when that money runs out. Then tens of millions more taxpayer dollars have to be doled out to subsidize another company's purchase of the make-work project, this time to keep 50 jobs running.

Meanwhile the $24 million not taken by the NS government in the tax credit has led to the creation of about 2100 full time jobs that work every year, year in, year out, and about $139 million being spent in the province by productions every year.

The companies that employ those 2100 people all pay corporate income taxes.

Those 2100 employees all pay income taxes.

A percentage of every dollar of that $139 million spent on anything that isn't groceries in Nova Scotia is collected in "Goods & Services" sales taxes. Half of that money goes straight to Nova Scotia's treasury

The vendors who supply everything from food to furniture to these productions also pay sales taxes, as well as their own corporate and income taxes.

I'll bet dollars to Doritos that the Nova Scotia film industry results in more going into the province's coffers than the $24 million "lost" by the tax credit.

If something pulls in more money than you're allegedly putting out, it's not an expense, it's an investment.

FALLACY #3: THE MONEY GOES TO RICH HOLLYWOOD FAT CATS:

Foreign productions don't pay income and payroll taxes in Nova Scotia. Hence, they don't get the tax credit.

The myth of the crew coming entirely from Hollywood is just that, a myth. It's too expensive and awkward to bring an entire crew and their equipment all the way from Hollywood. Instead, foreign productions just bring in a handful of "above the line" personnel and everything else is done by hiring local subcontractors.

Those local sub-contractors who provide equipment, crews, casting, and a myriad of other services pay taxes, and are the people who get the tax credit. Also, unlike the big Hollywood studios and TV networks, these subcontractors are usually small businesses who rely on the tax credit to be competitive with other locations and the services they provide.

Once you get past these fallacies you might get to the truth that the tax credit is more of a positive than a negative. So let's hope this new tax relief deal helps keep the industry growing.

 

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Comments
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commented 2015-05-15 13:33:35 -0400
It’s a tax exemption other industries in the jurisdiction do not get – the very essence of state interference in the market – AKA soviet market control.
commented 2015-04-29 06:37:19 -0400
Chinese company Dongdu International Group of Shanghai. in a MOU with Nova Scotia Business Inc . in May of 2014 indicated it will be building a new film industry in Halifax. This industry will create films shot on locations in NS designed to help market the province to the 100 million Chinese tourists who they plan to attract here. This change to the tax credit system either just killed this deal or it is part of a bigger plan by the Liberal party to restructure the industry in favour of The Chinese business model. http://www.cbc.ca/news/canada/nova-scotia/chinese-firm-plans-big-resort-at-indian-harbour-lake-1.2656057
commented 2015-04-28 22:11:32 -0400
Don’t leave us hanging Matthew why do you think so?
commented 2015-04-28 12:54:45 -0400
Nope, sorry, this tax credit is bad policy.
commented 2015-04-28 12:19:19 -0400
Why do these governments think breaking the kneecaps of the money makers will result in more money? They make money because they are left alone, and everybody benefits. Why do governments think companies should be in business for them and not worry about making a profit? No profit, you shut down or take it out of the province, then everyone loses. You don’t go into business to give your profit to the government. If that’s how its going to be nobody will open up business in Nova Scotia, or Ontario, or New Brunswick, or BC or Quebec, or Manitoba……Trailer Park boys road trip to Sask.!

" I’ll bet dollars to Doritos that the Nova Scotia film industry results in more going into the province’s coffers than the $24 million “lost” by the tax credit."
commented 2015-04-28 11:49:39 -0400
You may make that argument regarding any industry. There are lots of companies and their employees that by this measure would be entitled to tax credits. With the alleviation of the tax burden for say the construction industry, for the housing industry, how much more investment and commerce would result?

Everyone knows the benefit of a tax cut. Why is it good for the entertainment business and no one else? Why should those without the entertainment business receive no tax break whilst those within it do?