Mar 23, 2019
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Subsidies for Hollywood film producers take from B.C. coffers

Government support for Hollywood producers shooting films in B.C. attracted a lot of attention in the recent election, with the NDP arguing for enrichment and the Liberals defending the status quo. It’s too bad that ending the subsidy was not on the agenda.

B.C. spends about $260 million a year promoting foreign film production, but my research suggests that B.C. residents are poorer by about $200 million as a result. Elimination of film tax credits is a rare opportunity to improve B.C.’s economic performance while reducing the deficit.

My analysis focuses on “foreign location shooting,” which is foreign-financed production of movies that could be shot in many alternative jurisdictions. Canadian-content films are a separate matter that need to be assessed relative to the national-identity values they may promote. In contrast, policies for foreign location shooting can be assessed more narrowly on their economic costs and benefits.

Tax credits for foreign location shooting are usually defended on the grounds that they create jobs. It is hardly surprising that a 33-per-cent subsidy on labour costs raises output and employment in the film industry, but focusing on the film industry ignores what happens in other industries when governments raise taxes or cut spending to finance the film tax credits, as they must.

Higher business taxes will cause firms to cut back on output and employment, while an increase in personal taxes will cause individuals to spend less, which will also show up in job losses. Similarly, a reduction in government spending will feed through to lower output and employment.

The bottom line is that the subsidized jobs come at the expense of activity in other sectors. It would be very surprising if raising taxes on all firms and giving the proceeds to some of the same firms resulted in a net increase in output and employment.

The subsidy for foreign location shooting is sometimes justified on the grounds that it pays for itself by stimulating additional activity and hence generating more tax revenue. But since the tax credits result in a shifting of activity across sectors rather than a net increase, we should not expect to see an increase in tax revenue.

Why are residents of B.C. poorer as a result of subsidizing foreign location shooting of films? An important part of the answer is that more than half of the tax assistance flows out of B.C. to Hollywood film producers, which directly reduces the real income of B.C. residents.

A second part of the answer is that using taxes to finance the spending harms economic performance by affecting incentives to work, save, and invest. Since markets do a reasonable job of allocating the economy’s resources efficiently, using the tax system to draw capital and labour into film production has to mean that productivity suffers as a result of the subsidy.

Film tax credits provide a benefit to B.C. by encouraging foreign actors to work and pay taxes in Canada without consuming much in the way of government services. By increasing the scale of the film industry, the credits may also reduce production costs, which is a benefit to B.C. residents.

But my analysis finds that the benefits are small relative to the costs, so B.C. taxpayers would be better off if film credits were eliminated. And while the benefits would be maximized if all governments in Canada act together, B.C. or any other province acting alone would still realize a substantial net benefit.

Although taxpayers would be better off, the workers brought into the industry by the subsidy — numbering about 4,500, according to my estimates — face a period of unemployment and possibly training expenses to learn new skills. To be fair, affected workers should be compensated for their income losses.

Research undertaken at Statistics Canada suggests that providing compensation for workers over a period of five years would use up approximately one year’s savings from eliminating the subsidy. The cost of eliminating the subsidy for Hollywood producers could be reduced by phasing out the tax credits over a period of years.

A multi-year phase-out period would allow more of the adjustment to be made through reduced replacement of workers who retire or leave the industry for other reasons. Phased elimination would also allow firms a longer period to amortize or retool special-purpose facilities constructed for the foreign location film industry.

When the B.C. Legislative Assembly reconvenes, it would be well advised to consider replacing some of the planned tax increases, which will hurt efficiency, with elimination of film tax credits, which will improve the performance of the B.C. economy. Getting rid of ineffective programs is always good policy, but there is an added benefit if doing so prevents implementation of harmful tax increases.

John Lester is an economist, formerly with Finance Canada, now an executive fellow with the University of Calgary School of Public Policy.

Source: Vancouver Sun

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Headline, Industry News

Subsidies for Hollywood film producers take from B.C. coffers

Government support for Hollywood producers shooting films in B.C. attracted a lot of attention in the recent election, with the NDP arguing for enrichment and the Liberals defending the status quo. It’s too bad that ending the subsidy was not on the agenda.

B.C. spends about $260 million a year promoting foreign film production, but my research suggests that B.C. residents are poorer by about $200 million as a result. Elimination of film tax credits is a rare opportunity to improve B.C.’s economic performance while reducing the deficit.

My analysis focuses on “foreign location shooting,” which is foreign-financed production of movies that could be shot in many alternative jurisdictions. Canadian-content films are a separate matter that need to be assessed relative to the national-identity values they may promote. In contrast, policies for foreign location shooting can be assessed more narrowly on their economic costs and benefits.

Tax credits for foreign location shooting are usually defended on the grounds that they create jobs. It is hardly surprising that a 33-per-cent subsidy on labour costs raises output and employment in the film industry, but focusing on the film industry ignores what happens in other industries when governments raise taxes or cut spending to finance the film tax credits, as they must.

Higher business taxes will cause firms to cut back on output and employment, while an increase in personal taxes will cause individuals to spend less, which will also show up in job losses. Similarly, a reduction in government spending will feed through to lower output and employment.

The bottom line is that the subsidized jobs come at the expense of activity in other sectors. It would be very surprising if raising taxes on all firms and giving the proceeds to some of the same firms resulted in a net increase in output and employment.

The subsidy for foreign location shooting is sometimes justified on the grounds that it pays for itself by stimulating additional activity and hence generating more tax revenue. But since the tax credits result in a shifting of activity across sectors rather than a net increase, we should not expect to see an increase in tax revenue.

Why are residents of B.C. poorer as a result of subsidizing foreign location shooting of films? An important part of the answer is that more than half of the tax assistance flows out of B.C. to Hollywood film producers, which directly reduces the real income of B.C. residents.

A second part of the answer is that using taxes to finance the spending harms economic performance by affecting incentives to work, save, and invest. Since markets do a reasonable job of allocating the economy’s resources efficiently, using the tax system to draw capital and labour into film production has to mean that productivity suffers as a result of the subsidy.

Film tax credits provide a benefit to B.C. by encouraging foreign actors to work and pay taxes in Canada without consuming much in the way of government services. By increasing the scale of the film industry, the credits may also reduce production costs, which is a benefit to B.C. residents.

But my analysis finds that the benefits are small relative to the costs, so B.C. taxpayers would be better off if film credits were eliminated. And while the benefits would be maximized if all governments in Canada act together, B.C. or any other province acting alone would still realize a substantial net benefit.

Although taxpayers would be better off, the workers brought into the industry by the subsidy — numbering about 4,500, according to my estimates — face a period of unemployment and possibly training expenses to learn new skills. To be fair, affected workers should be compensated for their income losses.

Research undertaken at Statistics Canada suggests that providing compensation for workers over a period of five years would use up approximately one year’s savings from eliminating the subsidy. The cost of eliminating the subsidy for Hollywood producers could be reduced by phasing out the tax credits over a period of years.

A multi-year phase-out period would allow more of the adjustment to be made through reduced replacement of workers who retire or leave the industry for other reasons. Phased elimination would also allow firms a longer period to amortize or retool special-purpose facilities constructed for the foreign location film industry.

When the B.C. Legislative Assembly reconvenes, it would be well advised to consider replacing some of the planned tax increases, which will hurt efficiency, with elimination of film tax credits, which will improve the performance of the B.C. economy. Getting rid of ineffective programs is always good policy, but there is an added benefit if doing so prevents implementation of harmful tax increases.

John Lester is an economist, formerly with Finance Canada, now an executive fellow with the University of Calgary School of Public Policy.

Source: Vancouver Sun

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Headline, Industry News

Subsidies for Hollywood film producers take from B.C. coffers

Government support for Hollywood producers shooting films in B.C. attracted a lot of attention in the recent election, with the NDP arguing for enrichment and the Liberals defending the status quo. It’s too bad that ending the subsidy was not on the agenda.

B.C. spends about $260 million a year promoting foreign film production, but my research suggests that B.C. residents are poorer by about $200 million as a result. Elimination of film tax credits is a rare opportunity to improve B.C.’s economic performance while reducing the deficit.

My analysis focuses on “foreign location shooting,” which is foreign-financed production of movies that could be shot in many alternative jurisdictions. Canadian-content films are a separate matter that need to be assessed relative to the national-identity values they may promote. In contrast, policies for foreign location shooting can be assessed more narrowly on their economic costs and benefits.

Tax credits for foreign location shooting are usually defended on the grounds that they create jobs. It is hardly surprising that a 33-per-cent subsidy on labour costs raises output and employment in the film industry, but focusing on the film industry ignores what happens in other industries when governments raise taxes or cut spending to finance the film tax credits, as they must.

Higher business taxes will cause firms to cut back on output and employment, while an increase in personal taxes will cause individuals to spend less, which will also show up in job losses. Similarly, a reduction in government spending will feed through to lower output and employment.

The bottom line is that the subsidized jobs come at the expense of activity in other sectors. It would be very surprising if raising taxes on all firms and giving the proceeds to some of the same firms resulted in a net increase in output and employment.

The subsidy for foreign location shooting is sometimes justified on the grounds that it pays for itself by stimulating additional activity and hence generating more tax revenue. But since the tax credits result in a shifting of activity across sectors rather than a net increase, we should not expect to see an increase in tax revenue.

Why are residents of B.C. poorer as a result of subsidizing foreign location shooting of films? An important part of the answer is that more than half of the tax assistance flows out of B.C. to Hollywood film producers, which directly reduces the real income of B.C. residents.

A second part of the answer is that using taxes to finance the spending harms economic performance by affecting incentives to work, save, and invest. Since markets do a reasonable job of allocating the economy’s resources efficiently, using the tax system to draw capital and labour into film production has to mean that productivity suffers as a result of the subsidy.

Film tax credits provide a benefit to B.C. by encouraging foreign actors to work and pay taxes in Canada without consuming much in the way of government services. By increasing the scale of the film industry, the credits may also reduce production costs, which is a benefit to B.C. residents.

But my analysis finds that the benefits are small relative to the costs, so B.C. taxpayers would be better off if film credits were eliminated. And while the benefits would be maximized if all governments in Canada act together, B.C. or any other province acting alone would still realize a substantial net benefit.

Although taxpayers would be better off, the workers brought into the industry by the subsidy — numbering about 4,500, according to my estimates — face a period of unemployment and possibly training expenses to learn new skills. To be fair, affected workers should be compensated for their income losses.

Research undertaken at Statistics Canada suggests that providing compensation for workers over a period of five years would use up approximately one year’s savings from eliminating the subsidy. The cost of eliminating the subsidy for Hollywood producers could be reduced by phasing out the tax credits over a period of years.

A multi-year phase-out period would allow more of the adjustment to be made through reduced replacement of workers who retire or leave the industry for other reasons. Phased elimination would also allow firms a longer period to amortize or retool special-purpose facilities constructed for the foreign location film industry.

When the B.C. Legislative Assembly reconvenes, it would be well advised to consider replacing some of the planned tax increases, which will hurt efficiency, with elimination of film tax credits, which will improve the performance of the B.C. economy. Getting rid of ineffective programs is always good policy, but there is an added benefit if doing so prevents implementation of harmful tax increases.

John Lester is an economist, formerly with Finance Canada, now an executive fellow with the University of Calgary School of Public Policy.

Source: Vancouver Sun

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

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