There’s no business like show business?

I’m not going to make many friends with my column today agreeing with the province’s decision to scrap the film labour tax credit.   To me this is another in a long line of industries where New Brunswick has made a less than half hearted attempt to compete.

Consistent with my emerging view on this stuff, if the film and TV production industry can come up with a plan to transform that industry into a growth engine (it has essentially been around the same size since I first started looking at it 15-20 years ago) and if there are tools the government can use that can be shown to provide value to the taxpayer, I say it is worth a look.

These days I think we need to be focused on growth opportunities rather than just coasting.  The challenge for all of these industries where New Brunswick has been playing at the margin for years is to have them come forth with a credible growth plan and look for ways for government to provide support.

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49 Responses to There’s no business like show business?

  1. Tom Rivington says:

    When I read that the film companies get a credit of as much as 40% of their payroll, that’s when I stopped caring about the impact of the cut.

  2. I must say that I am surprised David. Weren’t you advocating that we should be behind the gaming and film industry as a target sector a while back?

    The industry is a knowledge based, non-polluting industry which overcomes any location disadvantages with digital distribution allowing NB to play in the same game as Toronto or Hollywood.

    As a tax credit there is little risk in the policy as there was with the Atcon type loans. I had the impression that the industry was actually growing somewhat although I don’t have any numbers to back that up. By cutting the tax credit, the propects of growing the industry is now pretty slim.

    This is provincial budget choice is the one that is making me scratch my head the most.

  3. I think we have to be careful not to mix things up. Video games and animation are related to but not the same as film. Any industry that requires more subsidies than the total wages paid – is not a particularly good investment.

    As for the prospects, with the tax credit, the industry has not grown in 15 years. If the industry had a plan to grow the industry in a significant way and the tax credit was integral to that, I might reconsider my position although the high level of subsidy is a problem.

    Toronto, Vancouver and others have built huge industries with broad multiplier effects. Even with the subsidies, that might make sense but in New Brunswick?

    I come back to the point I made. If the industry thinks there is real growth potential, I would encourage them to make the case but a $3 million to $4 million subsidy for $10-$15 million worth of industry output (much of which leaves the province) is not a particularly good investment.

  4. mikel says:

    Well, here’s an alternative-what about making a WHOLE hearted attempt to compete? It has been around the same because there are very few policies made to improve the industry. Several years ago Nova Scotia came out with an aggressive new policy, and since then I’ve been waiting for NB to come out with a plan to compete.
    As you’ve said with government investments in general-its the ‘real world’. You HAVE to compete to be in the game. I do agree that such a credit should also apply to ALL digital media-does it?
    Where I’d agree is that any company that does film should also be doing digital media. THere is a reason why almost every hollywood movie comes out with a video game. And surprise surprise, after ****ing off all the production companies in the province so bad that most of them are leaving, the government is doing some damage control by telling them “Oh, but we’re coming out with a new digital media tax credit plan”. Gee, wouldn’t it have been nice to say that BEFORE the companies move.

  5. mikel says:

    I’ve done some research and animation is definitely covered under this plan, although not software or gaming. That’s where it would make sense to stretch out the credit further-not get rid of it.

    But can somebody explain this to me. You have a tax credit which is worth 40% of the amount that you’ve paid out to workers. How does that result in being MORE of a subsidy than the company is paying the workers? So lets say you have a company that pays its workers 300,000-all of which is in NB by the way. Your company can then get a tax credit of $120,000 (another 12 grand if its a rural area). Your company earns, lets say a million dollars, which means you can deduct $120,000 off of that.

    So I’m confused. As a company you are still paying all these workers, and you are still earning all this money (well, not after you move to Nova Scotia). You just aren’t paying that $120,000 to the province-but of course if the industry players leave, then they aren’t paying that 120 grand, and they aren’t paying taxes on their revenue, and they aren’t employing all those workers.

    The problem with the statistics is that in order to crunch the numbers they are adding in ALL subsidies. So, for example, you can go to NBFilm and get a ‘pre development loan’, or other such subsidies (I don’t really know), so in talking about these statistics, you are confusing OTHER subsidies with the tax credit. As it stands, I see NO way for this on its own to result in a ‘subsidy’.

    And I do have some experience with NB Film, and I can tell you that like EI, a good percentage of any ‘sudsidy’ comes from the National Film Board and/or CBC-so its not even the province that is doing the subsidizing, but the feds. The film people line up like geese whenever the NFB comes to town.

  6. mikel says:

    And just to be clear, isn’t this the kind of government investment you’ve been talking about all along? Giving tax credits for job creation as opposed to handing out cheques? (as Higgs is now talking about doing).

  7. It’s amazing to me that when some people disagree with me they seem to think or insinuate that I make up numbers. I can assure you I never make up numbers.

    Input-Output Tables Provincial Input-Output Multipliers
    New Brunswick
    Multipliers and ratios per $1 of exogenous industry output shock

    Motion Picture and Video Production, Distribution, Post-Production and Other Motion Picture and Video Industries

    Direct and indirect effects within province (per dollar of output)
    Subsidies on Products 0.27
    Subsidies on Production 0.11
    Wages and Salaries 0.19
    Supplementary Labour Income 0.02

    Now, there are potentially a number of things going on here. First, much of the wage income could be leaving the province. That would happen when you bring in paid actors from outside the province. All of their wage income would leave. It is also true that the subsidy figures are inclusive of any provincial, federal and even local subsidies.

  8. Tim says:

    Targeted industry incentives have some appealing attributes – most importantly measurability and a focusing of effort/scarce resources. However, any industrial success has to come from entrepreneurial energy. This energy results in creating greater value than simple cost advantage. The government providing an industry certain advantages over another industry -by charging lower taxes, direct funding, absorbing risk through loans, etc … can unlock some latent opportunity, and serve as a catalyst to help create some perpetual motion – but, if (after a reasonable time) this doesn’t happen – this special treatment should be discontinued. (for instance, we could similarly argue that no business should pay taxes, because they will provide employment)

    So I guess the real questions are – 1) Is there enough growth in this industry to indicate that it may become self-sustaining. 2) Have incentives been in place long enough to stimulate results. 3) Can we identify spill-over effects that are creating indirect value that exceed input costs?

    (It’s the “spill-over” argument that’s hard to agree on – this is where social/intangible benefits creep into the discussion. )
    I suspect benefits (however we classify these benefits) are not showing signs of growth… but I don’t follow the industry close enough to know for sure. It would be interesting to hear more though.

  9. mikel says:

    Not sure if that is a reference to my remarks, I certainly never said you made things up. Most importantly is that I said much of the subsidization comes from the feds, not the province. Now that several of the larger production companies are moving to Nova Scotia, that means that NB will lose even MORE federal investment. Second, my point is that a tax credit is NOT the same as a direct subsidy. The province is not GIVING a production money, they are just letting slide a certain percentage of your taxes.

    However, it says specifically at the site that the tax credit is given to “New Brunswick personnel working on a New Brunswick production”. You aren’t New Brunswick personnel if you are from outside the province, unless I’m really misunderstanding what is meant by “New Brunswick Personnel”.

    My next question would be how does Statistics Canada calculate a film ‘subsidy’? In my example above, taxable income drops by 120 grand from this tax credit. So does Stats can consider this 120 grand to be the same as if the NB government wrote you a cheque for 120 grand? Or does it use a different amount? If it does thats pretty unfair because having your taxable income lowered is a lot different than the government writing you a cheque.

    So however they calculate this amount, they are adding it in with all the grants that the NFB and maybe CBC are investing and then coming up with the number that says ‘subsidies’. However, your beef is with the subsidies, NOT with this tax credit. It sounds like you are complaining about this one facet of the industry because the industry itself is heavily subsidized. I am saying drop the sudsidies, and increase the tax credits to more industries and more facets of the business to create more employment, not drop the ONLY economic policy in the entire industry that makes any sense.

    You can go see Charles Leblanc’s interview of Blaine Higgs where he says that companies will STILL be able to get direct sudsidies-depending on the project. So it seems crazy to me, and more in line with your constant refrain, to have the tax credits and STOP giving direct grants. This encourages people to find more private sources of funding, and to create more jobs.

  10. richard says:

    If Higgs really wants to target subsidies, then perhaps he should look at below-market stumpage fees charged to his former employer.

    I’d have more support for Higgs’ approach here if 1) it was not just a PR stunt to show everyone how ‘tough’ the new admin was and 2) there was any hint of a real innovative ED strategy coming along. Seems to me the new strategy should be in place BEFORE you start throwing away jobs that followed from the old strategy. Is that too much to ask?

  11. jayne belliveau says:

    i am an independent producer with a slate supported by a US studio, we would like to shoot in NB. i would like to see a full breakdown of your financial analysis, if possible.

  12. jayne belliveau says:

    if you could give examples of each of the subsidies that would be helpful.

    Direct and indirect effects within province (per dollar of output)
    Subsidies on Products 0.27 – for example?
    Subsidies on Production 0.11 – for example?
    Wages and Salaries 0.19 – for example?
    Supplementary Labour Income 0.02 – for example?

    the film and tv business is extremely complex, this may indeed be accurate. i’m just not sure i understand the analysis.

    thanks in advance for your consideration.
    jayne

  13. Jayne, from the Statistics Canada data, I can’t tell what specific programs are used. We only know the aggregate subsidy levels. The NB government has an example here (http://www.nbfilm.ca/programs/tax_credit_finpart.asp?language=e&show=tc) where a $1M production receives $250k in cash contributions and a maximum tax credit of $375k on top of that. You will also find on the site the Waiver of Residency that allows outside actors to come in (which might explain the wage leakage).

    I am not positioning myself as a big opponent of this industry. My column, blog, etc. was only meant to show the industry is heavily subsidized (as it is elsewhere and I point this out too) and a tiny industry and one that has not grown by any amount in the 15 years I have been looking at it.

  14. mikel says:

    That’s exactly my point, in case it was missed. Wouldn’t it make more sense to get rid of the 250K in cash contributions? Higgs never said ANYTHING about that. This is what confuses me. You are always bemoaning the ‘write a cheque’ style of financial incentive in favour of (I always thought) tax credits. So now nobody said ANYTHING about the 250K in cash contributions-that’s still going to stay. But they are getting rid of the tax credit. And you are saying thats a GOOD thing? I know human aren’t necessarily logically consistent all the time-or even most of the time-dare I even say SOME of the time.

    So the quick and easy question to ask is whether you have a method of financial incentives that you would like the provincial government to follow, or does it just depend on the industry? Aren’t tax credits your preference-thats what NS does, and you’ve always praised it (I think).

    The one alternative I see is that, OK, there are two different policies affecting a subsidized industry, one good one bad. They are getting rid of the good policy in a bad (meaning too heavily subsidized) industry, but “at least they are doing SOMETHING”. They aren’t doing what would be GOOD, but at least its SOMETHING. We see that response a lot in government decisions, as opposed to leaving it to the status quo.

    The PROBLEM with that is-yet again-even with your example, we have a $750 grand private investment on a million dollars-and again I don’t see how THAT can amount to more provincial investment than private (or fed)-a tax credit is still money paid to workers (the rest I suspect is from the feds, but if you are complaining about federal investment in this tiny industry then this blog has me VERY confused).

    So we have that 750 grand that is now GONE. And lets bring in Richards point-at least THIS heavily subsidized industry isn’t ransacking the forests, poisoning the water, or giving people cancer. The other problem is a political one-in that IF enough people gripe, then the government will say “oh, look, look how much we are investing in your industry”-but with the tax credit gone, it will have to increase DIRECT subsidies to be able to say that. So once again you have an increase in the type of BAD subsidies out there.

  15. Chris Baker says:

    David –

    You are to be congratulated for asking people to use their heads rather than their hearts when thinking about difficult public policy issues. Your independence and careful thinking is something to be welcomed, not spurned, on these issues. Your analysis puts the spotlight directly on the question of this industrial subsidy.

  16. jb says:

    david,

    your analysis points to a more imminent threat to the new brunswick and canadian film and tv industry, as it relates to subsidizes licensing agreements, etc… the emergence of digital streaming (similar to what happened in the music industry)in the market will most likely affect the magnitude of subsidized licenses from canadian broadcasters – forcing producers to compete for a smaller pool of money – creating a model closer to the us model (few subsidies). so, on one level i understand your position on the industry and agree with it to a certain extent – i am an advocate of free markets.

    as for the analysis of the tax credit and equity investment – if one reads the new brunswick tax law one will find that these numbers are lower than those outlined above. same applies for the equity investment.

    your analysis pointed to current and imminent issues facing the future of the NB and canadian industry in general and in the coming years.

    this is a good opportunity to have a look at how one can improve on the current model as we move forward.

    best regards,

    jayne belliveau

  17. mikel says:

    I agree with Chris, even if I disagree with this policy. I had an even nastier comment ready until I actually followed the link and read the Irving article. In this case I really don’t understand the reasoning, but its very important that people look at the economics of these things and not the fantasy of it. I really find your view on this logically inconsistent, but like a good policy on a bad industry, at least its being discussed. The only reason I’m being a prick about it is that when I see people being logically inconsistent with their advice, it makes me wonder if something else is at play,and nobody is above criticism-its actually a good thing, otherwise you end up with a blog like Alec’s where nobody posts comments except the occasional ‘nice writing’. It does take a lot of guts to do that and put up with all the pinhead commenters who think they are smarter than everybody else:)

  18. Tom says:

    Chris,

    As Mike has repeatedly pointed out, the tax credit is not a government subsidy. It is a tax credit. The difference is one between how much money the company gives the government and how much money the government gives the company.

    Without the tax credit, the incentive of business to stay in NB is gone. There is a lower tax for their industry, because they support the economy.

    Without the tax credit, they are forced to migrate to greener pastures that do have tax breaks, eliminating local job opportunities, eliminating existing tax revenue and any existing residual economic benefits.

    Saying that the eliminating the tax credit actually will save money or increase tax revenue, or benefit the government’s overall budget in any way, seems to me to be a non-fact.

    Subsidy, as argued by David, may not be worth the investment. Oddly, as Matt stated, that is the support program they opted to keep, even though the film industry need not be heavily subsidized, because the tax credit is the bigger draw.

  19. Tom says:

    I should claify that I am defining subsidy there as direct subsidy, that is, government investment. While tax breaks can still be defined as subsidy, they are more a form of indrect subsidy. Those terms might better reflect the flow of money in versus money out. Any way you put it, it makes little economic sense when the end result is a net loss.

  20. scott says:

    @Tom
    Define it as you will, but film tax credits are nothing more than a Hollywood welfare program. A welfare program that does nothing more than create more complexities to the tax code than are needed. We already have a very attractive tax system in place thanks to the Jack Mintz approach legislated in by the Graham government. If anything, if you want to know the true definition of a subsidy look no further then the huge cultural item that is the $1-billion annual CBC subsidy. A subsidy which, if I’m not mistaken, has helped keep this particular industry we are talking about here afloat and allowed it to continue in its uncompetitiveness ways while lobbying for further tax credit favours. Sorry, but the gravy train must end sometime.

  21. mikel says:

    It’s important to point out that we don’t have a whole lot of direct info on this. For example, one poster above points out that in the US there are ‘few subsidies’, which isn’t close to being true. In fact, you could argue that it was Canada that started this ‘race to the bottom’ where you now see states giving all kinds of generous subsidies.

    In the US, in one article I found, they talk about companies actually being able to ‘sell’ their tax credits. So its creating a new financial investment, which means company A is ‘sort of’ getting a direct subsidy, because it is taking its 40% tax credit and selling it for X dollars. So in a way thats a DIRECT subsidy. But I HIGHLY doubt that is going on in New Brunswick, or even Canada, but I just don’t know.

    I never doubt David’s use of numbers, however its important to note that statscan says HOW it produces these numbers is through a ‘survey’, which isn’t exactly hard and fast like tax returns.

    As for digital streaming, thats a long way off. While its not really a ‘subsidy’ either, I suspect that many of these productions are in the end PURCHASED either by educational institutions, the CBC, the National Film Board or some other public institution.

    I know that Rogers, for example, buys very little, in fact its stated in their contract that they can only purchase ‘informative’ programming like news and current events, which is why there is really no drama.

    This really should be opened up more, if you look at the history of canadian television, you see numerous shows that got started at private affiliates, but NB affiliates NEVER show such shows, and Rogers CAN”T. The only exception I’ve ever seen is with Acadieman, and I’m not sure how that slipped in.

    Hopefully digital streaming will change things now that producers can go DIRECTLY to sponsors and advertisers. There has been an online french ‘channel’ for awhile now, and I’ve recently noticed “NBTV” which has a couple of shows. Given that its so cheap to do a show, then like with Radian, this could open up whole new opportunities. But from a public policy perspective, this move is costing jobs, so I really see no more justification for this than, say, the mill in Nackawic, where I’ve seen similar numbers as to how much the government is ponying up.

  22. jb says:

    I have refrained for weighing in on this dilaogue, but it is clear to me that a) no one on this blog is using the right vernacular – which leads me to believe that no one really understands how the business works. in other words tax credits, subsidies and provincial equity incentives are getting all mixed up. for whatever reason, one could somehow be lead to believe that a billion dollar industry is being designed by people with zero business acumen. the irony is that the business is run by conservative bankers – it takes someone who has made that kind of money to sign the checks AND b) dave’s numbers are inaccurate.

    here is where the analysis breaks down – what is implied in the following paragraph is reprehensible by law…

    “where a $1M production receives $250k in cash contributions and a maximum tax credit of $375k on top of that. You will also find on the site the Waiver of Residency that allows outside actors to come in (which might explain the wage leakage).”

    first – nb film equity investments are capped at 10% of the overall budget. on a $1MM budget, that is 100k in hard equity. financial models are designed to protect equity. i am working with one of the top canadian bankers in the business.

    second – the maximum tax credit contribution by LAW is between 20-25% of the total budget. on a $1MM budget, that caps at 200-250k.

    as for the issue with deeming actors – by law actors cannot be deemed.
    the law states that the tax credits are capped at 20-25%. even if one were to deem outside residents that number is still capped. also understand that as i producer, i pay money to bring in people from elsewhere – it is much, much better to hire local crew.

    rogers has a media fund they pay into – they pay 5% of their gross profits to the Rogers TV fund. That is how they finance pictures. It is a form of protectionism to foster Canadian filmmakers.

    i’d be happy to break down the various subsidies, tax credits, etc… to shed some light on this. i am alarmed that decisions on film are being made, when so few people seem to really understand the issues at hand. i am saying this based on my dialogue over the past two days with policy makers and from some of the confusion on this blog.

  23. jb says:

    “As for digital streaming, thats a long way off.” – really? There is a little company called Netflix offering unlimited content for $7.99 a month. Netflix is overhauling the film business model. Unless the federal government decides to limit competition by keeping them out of the country.

  24. jb says:

    furthermore, no model has been designed to monetize digital short content (to my knowledge at least). that is years away. some of the best and brightest minds run large film companies – if there is a buck to be made – they will be on it. hollywood is american idol on steroids. it is cut throat.

  25. richard says:

    jb – thanks for those informative comments. I certainly don’t pretend to understand the complexities around this issue. My problem with the NB decision is that a program that creates some well-paid jobs is being ended. Job losses will likely occur. This might be ok IF the govt had a strategy in place that would generate an equal or greater number of high-wage jobs. But they do not.

    This decision smacks more of PR designed to support re-election, rather than part of a renovated ED policy.

  26. richard says:

    ” film tax credits are nothing more than a Hollywood welfare program.”

    That’s fine from a theoretical viewpoint. But as other regions are not likely to end their incentives any time soon, NB is a net loser by ending those pgms now. NB will lose more than it gains.

    As for Jack Mintz – is NB now the Celtic Tiger? Funny, I don’t see that showing up in the job creation numbers. Once again, your theoretical constructs collapse in the face of reality.

  27. jb says:

    richard, I agree that IF jobs are lost people should have the opportunity to transfer their skills to earn a living. as for politics, i prefer to stay out of them whenever possible:)!

  28. mikel says:

    Yes, good comments. I’m not going to pretend to understand the financial complexities of the industry, my experience was very much ‘no budget’ film. However, I do know enough about government to know that political connections can have numbers skewer any which way. Which means that its still possible to get more subsidies than private investment-I know a couple of people who have done so-but again, on a VERY low budget. And there are MANY different government departments that can offer subsidies depending on the TYPE of investment. Canadian history, for example, has about five different departments that you can involve.

    However, when talking about the NB industry, we are NOT talking about Hollywood. I read the productions from one of the ‘major’ production houses in NB, and we are NOT talking about feature films here. I don’t even think there are ANY CBC shows located in NB.

    That brings us to Netflix, but again, I don’t know of any NB products available from Netflix, and we are mainly here talking about film production, not distributors of hollywood productions which basically just ship to Wal Mart.

    So to build that industry I disagree with Scott-virtually EVERY country and region in the western world has public subsidies to create ‘culture’ if not ‘entertainment’ (and usually both).

    I don’t doubt the professionalism of industry players, but I wouldn’t go so far as to say they are ‘bankers’. We heard all kinds of stories about Fatkat, and it seemed to be a company that grew way too fast, and had some management problems-or it was just bad timing.

    Again, its unfortunate that NONE of these players are publicly incorporated because then it would be easy to research their specifics. In this case, hopefully JB will add more to the content here, because we really are talking without much experience of the industry-much as the same as we talk about forestry subsidy programs without being foresters.

  29. scott says:

    “My problem with the NB decision is that a program that creates some well-paid jobs is being ended.”

    This is always the argument of Keynesian like yourself, richard. Short-term (what is seen) thinking with no regard for the health of the economy in the long run. Continue with the subsidies/credits/inflated wages (even if growth in the sector is performing poorly, like David has cleverly indicated in this case) as the alternative (a retrenchment) would mean disaster economically, especially in the middle or at the tail end of a recession. In other words, advocates of government intervention have always seen the short-term or what some may call the negative-sum economy where the weakening of one sector or company is a complete loss. To which, no other sector or company is to gain. Multipliers, like yourself, would even say that other sectors and companies lose from the overall reduction in economic activity. But this is, again, a short-term “what is seen” approach.

    Comapanies and sectors are always fading away and replaced with new ones. And usually, those provinces, nations and regions that are open to change and restructuring are grow more rapidly and generate more jons than those that resist change.

  30. scott says:

    “As for Jack Mintz – is NB now the Celtic Tiger? Funny, I don’t see that showing up in the job creation numbers. Once again, your theoretical constructs collapse in the face of reality.”

    If there was any huge decision that turned the tables in favour of a healthy, growing economy for the Irish, it was their decision in the 80s to come to a consensus that costs had to be reduced in the economy. Starting with unions conceded to legislation that would see overall wage moderation. As well, governments dealt with waste and spending accesses. And business taxes were cut to the bone. All this eventually led to an increase in profits as investement rose.

    So yes, you are correct in saying that tax cuts did not result in massive increases in investment in New Brunswick. When you forgo initial revenue with tax cuts, you can’t continue with your spend thrift ways. at some point there has to be an equal amount of spending reductions in order to make way for productive investments in the private sector. That hasn’t happened at the rate that is required yet.

  31. jb says:

    carrying on a dialog on the local industry without solid performance numbers on how the nb industry has been performing – is not getting us closer to a resolution.

    what i can say is that an output deal at a studio is a huge opportunity for the new brunswick film industry. fact – other provinces would love this deal to go to their province.

  32. jb says:

    i actually initially asked dave about his analysis, because if there were/is depth to it – then i would like to know and i think most people domestically and internationally would as well.

    my concern with the current discourse is that a) i am unclear on how much investment has been coming into the province to support local live action films and b) i have not seen the details on international sales of local content. without this data it is really hard to come to any conclusions.

    documentary one of the main genres here. it can be a lucrative business. there is an entire division at halifax film devoted to this i believe (or at least charles bishop may be that division and i believe he is still with halifax film). regardless, charles now has offices Halifax and in LA. canadians are desirable partners to americans and around the world in documentary, not only because of the economic crunch, but also because they play an important role in the genre. there is a rich tradition of documentary in nb and some friends are doing very well, and building solid strategic international allegiances.

  33. mikel says:

    Here’s Scott’s problem “Comapanies and sectors are always fading away and replaced with new ones”. That is true, but also true is that entire PROVINCES and even COUNTRIES often ‘fade’ and get replaced. But at least Scott is being honest-once you cut taxes you HAVE to cut services and wages. However, there is no economic analysis that shows that that can create jobs or be a favourable move for companies.

    NB is a perfect example of that. Go ask the guys who head Radian whether they are in Fredericton because of ‘low taxes’. They are based in Fredericton because of the unique coincidence that they are FROM Fredericton and like it there. NB has low taxes, and almost NO economic growth in any desirable industry that creates jobs.

    However, on this story I don’t think that David can be praised for taking the ‘unpopular’ side-if you go to stories on this at CBC and Irving, its clear that most people have NO problem with this. Even if you point out how much government investment something like Radian6 got.

    To put it in some perspective, the industry in NB only counts for 5-6% of Atlantic production, with the bulk of it in Nova Scotia. Recent reports out of Nova Scotia are just ecstatic, they’ve recently even dropped their residency requirement with means NB filmmakers can apply right away.

    I’ve often noticed the linguistic tension in NB, at least in the small group online, and also found out that most of this production in film is actually from the french community (several have said that the bulk of production will go to Quebec, not NS). So I wonder if like in so many other issues, there is simply a racist angle (not from David I know) in being happy this is killed.

    The biggest problem with this is for the newcomers. I forget those guys from Radian6’s name, but go ask them if they got NO help from government, whether they would have relocated to Nova Scotia and got equity financing and an open welcome there. While love of your home is a powerful incentive, at some point you have to say “enough is enough”. Most NB parents can empathize with that, since that’s usually the final straw that leads most of their kids to leave the province.

    So as a CBC commenter said, it comes down to analyzing the economic effect of the tax credit. It’s said that the industry is preparing their numbers to go public, and state its sad that the government refuses to even TALK to them.

    Others WILL stay put-as Hemmings House owner said, most of their production is corporate, so this has no effect. However, his company helped produce a film and several TV shows-and that will now be done in Nova Scotia for the simple reason as he puts it “broadcasters simply don’t pay enough to make quality TV”.

  34. richard says:

    ” Short-term (what is seen) thinking with no regard for the health of the economy in the long run. ”

    Well, this is getting a bit off topic. I’d just point out that while there is plenty of recent history that points out the workability of Keynesian economics, there is none for your approach.

    You are conflating two different things – govt investment in certain sectors, or use of tax incentives to encourage those sectors, has been shown to work effectively. Simply lowering tax rates has not been shown to be effective. Nor is there any evidence that draconian cuts in govt spending coupled with low tax rates will stimulate economic growth in any sustainable way. See UK for example – a disaster implemented by those following philosophies similar to yours.

  35. scott says:

    @jb
    As for digital streaming, thats a long way off.” – really? There is a little company called Netflix offering unlimited content for $7.99 a month. Netflix is overhauling the film business model. Unless the federal government decides to limit competition by keeping them out of the country.

    One last point, and I think it’s valid to this discussion since the example of Netflix was brought up above. In 2005, the FTC’s decided to sully Blockbuster video’s bid to acquire Hollywood Entertainment At the time, these were the two largest rental companies so a merger was regarded, by government bureaucrats, was unfair to competitors. However, what the FTC didn’t see was that traditional brick-and-mortar rental chains were under serious financial pressure as online competitors, such as Netflix, were rapidly growing their presence in th market. So by denying the merger of the brick-and-mortar companies, they were essentially denying their ability to merge as a more efficient entity so as to midigate the losses they will suffer due to the emergence of online rental companies such as Netflix. i guess what i’m saying is that when government believes that they can read the market or the future of an industry, but most of the time they either get it wrong or get in the way. In the case of the video rentals industry, it’s case and point that the FTC did not underastand the basic understanding of modern markets. Had they, they may have not hindered Blockbuster’s ability to merge and grow. A decision that cost them dearly.

  36. jb says:

    to speak to the point of government intervention…

    just received an e-mail from our private foreign investor. he outlined – what the tax credits needs to be for him to have confidence his investment is protected. he is a seasoned film investor. the numbers are on par with nb’s credits.

    these studio deals have performed consistently in the past four years. but without a tax credit – there is no deal to be made in nb.

  37. mikel says:

    Sure Scott, the guys at the FTC, whose job it is to analyze these deals to see if its in the public interest, simply were not aware that online video rentals would threaten brick and mortar rentals. Yes, I hear that they’ve been hiring a lot of retarded six year olds who unfortunately just are not aware of such things.
    Just to quickly point out, last night on the Daily Show they talked about how GE pays NO federal tax. Now, in light of that, how exactly do you lure somebody who pays no tax to your jurisdiction?

    JB’s post makes two points. First, I’m assuming that that means that WITH the NB tax credit the numbers are on par to protect his investment? I didn’t quite understand the way that was described.

    But more importantly what it shows is just how important tax credits are as a vehicle of investment. ALL these things come down to the numbers. Investors, in most cases, are not doing politics or a hobby, its a simple business decision. In most cases they are at least attracted to a certain project, but if the numbers aren’t there, then they’re gone.

  38. There’s a petition (http://www.gopetition.com/petition/44420.html) that’s beginning to circulate calling on the provincial government to overturn their decision on eliminating the Film and Television Tax Credit. The petition states that “for the investment of $54,867,148 that the NB Government has put into [the film] industry, it has returned $642,615,673 to our economy. To simplify, this means that for every dollar the province has invested, it has received $12 in return.”

    On April 5th, the petition has received almost 1,000 signatures. I’ll be interested to see where this goes.

  39. jb says:

    An output deal (delivering 2-3 pictures per year), means that a studio expects producers to deliver product to feed their pipeline to help keep their revenue streams stable. The pedigree of the teams surrounding the output deal (sales teams, caliber of talent, etc…) is solid and safeguards the investment. The output model is also used in other genres for TV channels, etc…

  40. jb says:

    The point with protecting the investment pointed to the fact that everyone producing today uses tax credits. The tax credit in NB is on par with most other states and provinces. Buyers take the “soft money, aka tax credit” into account when looking at the net cost of production. And Mikel – JB is female:)!

  41. Tim says:

    I would be interested in seeing the analysis that derived these figures. Is it available for review?

  42. scott says:

    @mikel

    Just to quickly point out, last night on the Daily Show they talked about how GE pays NO federal tax. Now, in light of that, how exactly do you lure somebody who pays no tax to your jurisdiction?

    mikel, I probably don’t have to tell you that I’m in favor of companies doing everything they can, within the law, to avoid taxes. I’ve said time and time again that the economic situation is much better off with the shareholders getting the profits, rather than the politicians. It’s just makes good economic sense. If anything, this whole GE thing shoould wake up politicians to the challenge they have to keep investment within their jurisdiction rather than scaring it away via hight tax rates. Remember UPM who moved out of the Miramichi and to a nation with a flat tax?

    Anyway, let’s be clear, there’s no encomium coming from me regarding what GE did. If anything, it’s obviously that it is not in the long term interest of the United States to have companies paying nothing because of special loopholes and special credits. There’s no question they’d be better off with no loopholes and a simple, low rate. A flatter rate to be exact. Under such a system, GE in all likelihood would wind up paying a lot more than they would even under today’s headline 35 percent rate.

    Which, btw, at 35 percent, is one of the highest and most uncom,petitive in the world. Companies suffer a smaller tax bite by keeping profits in low-tax havens such as Ireland, Switzerland and Singapore, or in Bermuda, where it’s zero. Makes you wonder if they’d ever repatriate any of that revenue when they are getting such a good deal. But before you come to what you think is the obvious conclusion, listen to this 60 minute piece in its entirety, especially what Cisco’s John Chambers had to say on the issue (7:20 min mark). It’s not the taxes, it’s the loopholes people. Close the loopholes.

  43. mikel says:

    A GIRL talking about business! In New Brunswick??:)

    I’d also like to see where those numbers come from in the petition-just to be sure. I know they used the statscan multiplier of 2.02 in order to get the ‘overall’ economic input, and I think if we can accept that with other industries there’s no reason not to here. The other numbers it would be nice to see a source.

    Scott, whether its loopholes or a tax rate, a corporation is going to go where the rate is lowest. You think GE is going to stay put (which it isn’t doing, even though it pays no federal tax) because of loopholes? Decision makers basically ask the accounting department what the bottom line is. And its a bit confusing to hear you say “I’m all for companies taking advantage of loopholes” and then saying “close the loopholes!”

    I would also be interested to know where the revenue stream actually COMES from. To answer a question at the CBC site, I looked at the Silver Wave Festival website and found a list of films. I’d be really curious to know how ANY of those made any money. Where exactly is the revenue stream for NB productions?

  44. jb says:

    “I would be interested in seeing the analysis that derived these figures. Is it available for review?” sure check the provincial websites or better yet, read this.

    http://us.mc5.mail.yahoo.com/mc/welcome?&.rand=1256027799#_pg=showMessage&sMid=0&fid=%2540S%2540Search&filterBy=&squery=incentives%20office&vp=1&srf=&.rand=102508269&midIndex=0&mid=1_22_1_381681_0_ANRWv9EAAHkBTXqsOgQxJizmFBc&[email protected]&clean&m=1_22_1_381681_0_ANRWv9EAAHkBTXqsOgQxJizmFBc,1_1426_1_530018_0_ANlWv9EAAACyTW75lwboImg74D4,1_2925_1_1394715_0_ANpWv9EAAQEVTS%2BYbAVHtXDbMOY,&sort=date&order=&startMid=0&.jsrand=6900658

  45. jb says:

    i hear NB was closed for business – or was that a rumor?

  46. jb says:

    this has zero to do with loopholes – it is what other provinces and states offer. if nb wants to pass on watering the seed of a blue chip opportunity (a lionsgate deal) – other provinces have offers in the table. so again, if nb is closed for business… let me know:)

  47. jb says:

    dave,

    to date i have only seen numbers that lump all money together. so for example telefilm is a crown corporation. i would guess there are a few more of those. cancon license agreements from broadcasters are funded by broadcasters themselves – from what i gather based on a recent conversation with an an official is part of that world. deals done without either rely on a free market. so what exactly was the analysis that kicked off the blog?

  48. Tim says:

    @jb
    I tried your link and it did not work. You said this analysis is posted on the NB government website? Can you post that link?

    Again, I’m sitting on the fence – but it would be a little silly to challenge Dave analysis due a lack of rigour, if by contrast we don’t see any analysis whatsoever for the numbers backing the ones in the petition.

  49. mikel says:

    True, we got off topic with all the loophole and general tax stuff (as we often do when Scotts posting:) I also couldn’t get access to the link, but I emailed Marcel Gallant to ask him. He’s the guy who started the petition and is organizing to protest-he also made the film that won a lot of the awards at the Fredericton film festival.

    And it should be reminded the nature of this industry. It’s NOT just the case that this is a company of potheads sitting around making ‘film’ like Eraserhead. It’s a business, so a good many, like Hemmings House, do mainly corporate work to pay the bills, then SOME film work. And workers in this industry will sometimes be part time, sometimes be students, or other small businesses who will do this on the side-like people who do hair or makeup.

    These companies will then do much of the work for major productions when they come to town, or they will have partnerships with other firms in other provinces, and X part of the production will be done in one location, and Y done in another. Like the Radian6 example, lots of times things will be done in NB IF the numbers are fairly close and a producer happens to be in that location and like Radian, just LIKES living in NB and wants to work there.

    The numbers here AT LEAST add up to 300 workers, the number of workers in Nackawic that the government continuously goes to the mat for. And unlike forestry, when an industry is BASED on creative ideas, then the profit potential is FAR higher than lumber and other commodities.

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