CALGARY — There apparently is no shortage of politicians with a not-so-secret Hollywood love affair: they love to throw tax sweeteners and direct subsidies at the film industry in an effort to lure film production to their province or state.
The latest starry-eyed politician is the British Columbia opposition leader, Adrian Dix. In his run-up to that province’s May election, the B.C. NDP leader has promised to up the film tax credit for labour costs to 40 per cent, up from 35 per cent.
Dix is hardly the first politician to swoon over starlets. In Ontario, after a tax credit fight with British Columbia in the middle of the last decade, Ontario sweetened various incentives for film. At present, its film and television tax credit covers 35 per cent of labour costs; the Quebec credit is set at 45 per cent. Both provinces, as well as B.C. also offer a plethora of additional film tax credits for total production costs.
Meanwhile, in Alberta, the film industry has pressed the provincial and federal governments to pony up $13 million and $5 million respectively for a proposed $32-million film studio in Calgary. The city has already committed $10 million in property taxes for the studio. Do the math and taxpayers would pay for most of the $32-million cost.
Such corporate welfare games, whether direct or in tax credit drag, are costly for taxpayers. But you wouldn’t know it from the politicians and industry proponents.
In Alberta, the film industry claims that for every buck in direct taxpayer subsidies, a 10-fold return in economic activity will result. Such crony capitalism for film is then akin to miraculous manna from heaven.
In British Columbia, the NDP claims an upped tax credit will cost the provincial treasury $45-million but reap $93 million in extra tax revenue. Perhaps Dix should propose a credit that costs an extra $450-million. If the NDP leader’s math is correct, that should result in an extra $930 million in tax revenues.
Indefensible numbers aside, let’s clear away the fog of misinformation.
Many of the film tax credits available are refundable. That means film companies can wipe away their tax payable and then receive a cheque from the public treasury for the remaining value of the credit. That’s why, as the Ontario government wrote in its 2012 budget, "such expenditures made through the tax system are, in substance, transfers or grants."
Such tax credits/grants are costly. Back in 2008, Louisiana taxpayers ended up financing more than $27-million worth of incentives for a Brad Pitt film. In British Columbia, the existing film tax credit hit the provincial treasury for $331 million in the last year alone. Rhys Kesselman, an economist at Simon Fraser University, recently wrote that B.C.’s subsidies amount to a taxpayer cost of $125,000 per film job.
Lower taxes on businesses can and do create additional economic activity because incentives matter. Plenty of evidence exists on how overall lower business taxes can spur economic growth. But the key is lower marginal rates for everyone, since that influences decisions to save, invest, and be entrepreneurial, not cherry-picked tax credits for this or that sector. Such favouritism actually hobbles overall economic growth, it doesn’t help it.
Besides, in a deficit environment, which most governments are in, juicier film tax credits mean tax rates for other people and businesses must be kept higher to cover the lost revenue.
As for the claim that taxpayer subsidies for film drive economic growth and more than pay for themselves, a comprehensive 2012 report from the Washington D.C.-based Tax Foundation found just the opposite: "The best evidence shows that film incentives cost the treasury more than they recoup from taxes on induced economic activity" wrote the Foundation.
The Tax Foundation pointed out that "aside from studies paid for by economic development authorities and the Motion Picture Association of America, an industry trade association, almost every other study has found film tax credits generate less than 30 cents for every $1 of spending."
Perhaps American and Canadian politicians could reach some sort of détente and kill their film subsidies all at once. That way, no politician could be accused of chasing away the film industry because incentives are more lucrative somewhere else.
As for the psychic need of politicians to be near Hollywood film stars, perhaps they should just ask for an autograph instead. That would be cheaper for taxpayers than financing another Brad Pitt film.
Mark Milke is a Senior Fellow with the Fraser Institute and author of several studies on corporate welfare.