Film subsidies don’t pay off

For a quick education on how the film industry plays politicians and taxpayers for suckers, Canadians need only cast their gaze south of the border to the prairie state of Iowa.

For a quick education on how the film industry plays politicians and taxpayers for suckers, Canadians need only cast their gaze south of the border to the prairie state of Iowa.

In September, Iowa’s film subsidies became an issue after an audit found that the state’s 50 per cent film tax credit helped one director buy a $61,000 Range Rover. Another treated himself to a $67,000 Mercedes-Benz.

Iowa rules allowed for the purchase of one automobile for film-related work under the subsidy policy, which has since been suspended.

In a more recent example of generous film subsidies, The Wall Street Journal recently reported that film producer Ingo Vollkammer switched his planned location shoots around the globe in search of the best deal. Locations hopped from Texas to Madrid, then finally to Berlin.

But Vollkammer finally settled on Montreal — after Quebec and federal incentives shaved $10 million off his $25-million movie, Velocity.

There is nothing wrong with directors buying luxury cars or shopping for the lowest location costs, but they should do so without help from taxpayers who must bare the full tax burden.

Film subsidies started in Canada in 1997 when Ontario offered lucrative tax credit enticements to the film industry.

Over the years, other provinces and U.S. states became increasingly willing to follow its example.

The justification always is the same. Last year, when Michigan Gov. Jennifer Granholm signed a very generous 42 per cent film tax credit into law, she asserted, “We’re going to grow this industry and in the process, grow our economy and create jobs.”

Hardly. Such tax credits merely redistribute employment across borders.

Too many politicians bend the rules by applying different standards to the entertainment industry.

In July, for example, Alberta Culture Minister Lindsay Blackett channelled the film industry’s standard line when he peddled the notion that taxpayer-subsidized film studios would yield a net economic benefit.

Blackett told the Calgary Herald’s editorial board that, for every provincial dollar invested in the industry, five more are generated in economic returns.

The Herald, quoting the film industry, reported that the film industry’s “new” tax structure expected $1.20 in new taxes for every one tax dollar given to the film industry.

When the numbers were crunched, the payback wasn’t there. Michigan’s Senate Fiscal Agency reported that its film tax credit will cost “more in business tax credits than it is expected to gain in income and sales tax revenue.”

It also said that a film company that spends $10 million in Michigan generates only $700,000 in income and sales tax revenue, but gets $4 million in payouts from the state government.

Tax relief makes sense, but not when sector-specific credits distort incentives favouring one industry over another.

That violates the principle of neutrality. It can be likened to a government that grants the Red Cross a 50 per cent charitable tax credit, but limits other charities to a 20 per cent credit for their donors.

True, the film industry creates jobs, but it’s not a revenue-generator. It merely shifts investments and yields little or no tax revenue. And it matters little whether films are shot in Canmore, Kelowna, Vancouver or Berlin.

One filmmaker understands the folly of film subsidies. Earlier this year, Michael Moore slammed politicians for giving into the film industry.

Said Moore, “These are large, multinational corporations — Viacom and GE, for example — that own these studios,” he said. “Why do they need our money from Michigan — from our taxpayers? We’re already broke here. I mean, they play one state against another.”

Yes, they do.

Mark Milke is the research director for the Frontier Centre for Public Policy