Government budgets – and Canadian economy – hurt by film tax breaks

February 19, 2013 | By | 6 Replies More

Film tax credits benefit Hollywood film producers, not government budgets

government budgets

Film tax credits hurt government budgets and only benefit Hollywood producers.

By John Lester

It’s government budgets season once again and the governments wanting to narrow deficits should not forget about the billions of dollars in tax-based expenditure programs that are delivered through the tax system.

For example, the federal and almost all provincial governments provide inducements to Hollywood film producers to shoot films in Canada, at a cost of about $475 million each year, but my research shows that Canadians are poorer, not richer, as a result of this spending.

Tax credits for foreign location film shootings are usually defended on the grounds that they create jobs. It is hardly surprising that a 25 per cent subsidy raises output and employment in the film industry, but it is important to consider what happens when governments raise taxes or cut spending to finance the film tax credits, as they must.

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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 lower demand for labour.

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.

So if the overall level of employment does not change, why are Canadians poorer as a result of subsidizing foreign location shooting of films?

An important part of the answer is that using taxes to finance the spending harms economic performance by affecting incentives to work, save and invest.

A second part of the answer is that some of the tax assistance flows out of the country to Hollywood film producers, which directly reduces the real income of Canadians.

Film tax credits provide a benefit to Canada 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 Canadian film industry, the credits may also reduce production costs, which is also a benefit to Canadians generally.

But the benefits are small relative to the costs, and Canadians would be better off if film credits were eliminated even with generous transitional assistance for the workers and firms affected by the change.

And while my research shows that the benefits would be maximized if governments act together, a province acting alone would also realize a net benefit.

John Lester is a Research Fellow at the The School of Public Policy.


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Category: Opinion

Comments (6)

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  1. John Smith says:

    Very flimsy article. Without numbers and statistics and interviews with filmmakers, economists and governmental policy makers it is mere conjecture, and uninformed one at that.

  2. Nicholas says:

    So what you’re suggesting is weaning us off the tax credits for film production. What you’re saying is that we are addicted to the high of bringing in foreign money and having it stay here. That we need tax credit ‘rehab’.
    Actually, I agree with you. There should be NO tax credits, anywhere in the world. Gifting the foreign producers with money that they don’t need on order to attract their business, money that we all put into the give coffers, seems inane. We should be competing on grounds like efficiency, innovations, trained labour, and technology. Working in a job that is partly subsidized by all of our tax dollars is not what I wanted for my career. And it’s not fair to those that work hard every day in industries that are not subsidized. But we aren’t in that world. We are in this one.
    Where foreign producers have billions of dollar to spend.
    Where the dollars left behind foster and grow infrastructure for domestic productions .
    The benefits are not just numbers .

    I have successfully made a living and fed my family from the film business for more than twenty years. It’s all I know.
    You’re saying that we should let the jobs that support nearly 25000 families in BC alone , just die out. If we lose this infrastructure, if we lose these people to other countries and other provinces, we will never get it back.
    And the producers will take their 1 billion dollars elsewhere. Nowhere is there talk of solutions, creative ways to attract producers, nowhere is the govt, or even private money stepping in help with innovative ideas. I’m not angry at an economic environment that is changing, I’m not angry at the naysayers like you but I’m angry at my govt that et these tax credits up in the first place, for just brushing us aside, ignoring us and letting us hang in the wind while other jurisdictions cash in. And be made to choose between my city and my career. Lucky I rent , so I won’t be losing my house , but others will.
    We need the help of an interested and involved govt willing to stand up for its people, not leave them to trampled by the economics of the time. The BC claims to be standing tall , being responsible , all I see is a scared and afraid government hiding behind ‘ a ‘balanced budget’ . It’s outrageous. This isn’t about the money. It’s about work and culture and our value as exporters of talent and skill.
    And you sir, however balanced you see your argument, are not seeing your life’s work torn away from you through inaction and fear.

  3. Habsfan says:

    Unlike the forest, mining, and fishing industries in B.C. (all heavily subsidized by the government btw), the film industry can go anywhere it wants.

    You need to do proper research before you write anything. The film incentives/rebates that B.C., Quebec, & Ontario offer are not handouts or tax credits, they are investment incentives pure and simple.

    Let me explain it to you in simple terms: A Producer wants to spend $1000 on his movie. He will take this money pretty well anywhere with some production infrastructure & crew. Let’s say he picks Ontario. The $1000 he spends in Ontario will spinoff to at least another $2000-$3000. The $1000 he spent has gone to employment and services in Ontario that will return at least $400 in taxes to the government and create more jobs, stability, and investment. A year later, Ontario will send $250 back to the Producer as a rebate on his investment in the province.

    Here’s the tough part so you need to pay attention. The $250 never existed before the Producer came to the province. It hasn’t been taken away from Teachers, Doctors, or Public Transit. It didn’t exist. What does exist now though is more people working (not taking from the system as they might otherwise be doing if unemployed), contributing, paying taxes, and here’s the kicker – sometimes those schools, hospitals, and civic governments will have made money off the productions in their areas. Here’s the other kicker, that Producer generally really wants to come to BC and live in our hotels and dine in our restaurants, vacation up at Whister and generally just spend more money around the town & province.

    If BC comes close to matching what Ontario does to get their $1000 (and trust me, they see the value of that $1000 & it’s spin-offs), the $1000 comes here instead of there. Get it?

    • Thomas Hayek says:

      Well explained, thank you for doing that.
      It would have been better if you wrote an article on Film Tax Credit, rather than a Researcher from School of Public Policy.
      I live in Ontario and work in Film. The Tax Credit works, and here in Ontario people know it.
      We Film technicians feel sorry for people in provinces where they have lost this wonderful incentive to spend money in their area on one of the cleanest industriesout there, even though we benefit from their loss.
      It makes me worry to read such an article based on incomplete research.

  4. all knowing says:

    this article is rife with stupidity. An obvious attempt to pander to the government to justify his job at the public policy school.

    Let the film industry suffer in Ontario. ,-40 degrees, snow , then too much heat, humidity in the summer ,

    terrible scenery, unfriendly people.

    dead fish on flammable lake Ontario.

    Yes, we must increase the credits in B C ,

    In the “mean” time the film industry will incur added expense in hostile territory.
    Next year B C will get the film industry trickling back as Ontario shows its lack.

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