My last word on the movies

Okay folks.  I don’t particularly like to be positioned as someone who is ‘against’ the movie biz in New Brunswick.  There were two reasons why I said the industry was not particularly strong from an economic development perspective.  First, it is highly subsidized – I specifically said this is true across Canada as well.  Second,  it is a tiny industry that has not shown great growth potential.  I also said three times there may be cultural grounds for supporting the industry but that is not the same as economic grounds.

Since then there has been a flurry of activity.  I think that single blog post (of the 3,000 since 2003) is either the most commented on our among the top two or three commented on in the eight year history of this blog.  In addition, I have recieved nasty emails calling me a ‘liar’ and even a voice mail on my home phone to this effect.

So, to clear things up, I do not consider myself to be a liar.  I use Statistics Canada and reputatable data sources.

I have been arguing that New Brunswick needs to foster growth sectors – sectors with real opportunity to create hundreds and even thousands of jobs for New Brunswickers.  Following the pack and being a poor imitation of another province is not my idea of economic development.  If the film biz could show a substantial growth opportunity, I would say that government investments may be valuable.  But the industry is tiny – according to Statistics Canada it averages around $6.5 million per year in GDP – GDP is the output from an industry that stays in the province.  This is the direct effect.  The indirect and induced effects are on top of that and not particularly high as evidenced by the multipliers

Gross Domestic Product (NB)    –     Motion picture and video production, distribution, post-production and other motion picture and video industries [5121A0]

  $Millions
1997  $ 4.0
1998  $ 4.3
1999  $ 6.0
2000  x 
2001  x 
2002  $ 5.9
2003  $ 5.4
2004  $ 5.8
2005  $  9.1
2006  $ 11.8

Source: Statistics Canada. Table 381-0015 – Provincial gross domestic product (GDP) at basic prices in current dollars, System of National Accounts (SNA) benchmark values, by sector and North American Industry Classification System (NAICS), annual (table).

I don’t know where the $650 million figure that is being sent around is coming from – I can’t access the link that was sent.  It is possible that the calculation they are using picks up a bunch of ther related industries – not sure.   It would be interesting to see their assumptions and sources.

The bottom line is this.  Much of New Brunswick’s economic development thinking has been follow the pack.  We mimic what other provinces are doing and get marginal benefits.    On a GDP basis, Nova Scotia’s film industry is almost three times larger than New Brunswick.  But this comes at a price. Subsidization is even higher in Nova Scotia. 

In the end, I gave the movie biz two out of five stars for its economic development potential.  I have seen nothing that moves me off that position.  I also said three times that if subsidies are justified on cultural/artistic grounds, that is a different beast.  I am a fan of strengthening cultural content in the province.

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5 Responses to My last word on the movies

  1. mikel says:

    The problem is EVERY industry will have a parrallel SOMEWHERE. It’s not like there is some type of magic industry where the province can say “hey, NOBODY is doing this”. Unless, of course, somebody wants to be crazy enough to say “hey, we have natural gas, why don’t we put NO environmental restrictions on the companies or royalties on the profits-hey, NOBODY is doing that, we’ll make out like bandits”. PS: that very well may be province’s policy on that-and maybe they want to make sure nobody is around to make a documentary on it:)

    But that’s a mistake to frame it as a ‘cultural’ industry. Because we are not talking about SUBSIDIZING a different industry, we are talking about the use of tax credits as a means to create employment. IF the province were saying “no more money for film”, then that would be the argument-but its not. Alward has SAID direct subsidies will continue, maybe even expanded. Higgs has SAID direct subsidies will continue-you can go to the video that Charles Leblanc did with Higgs and watch him say it (although keep in mind he also says “we have a balanced budget”-so sometimes I don’t know what he’s thinking).

    And just for fun I’ve been going through the supplementary lists of the NB public accounts-pretty interesting reading for a province putting on the poor mouth. As usual this government document is BADLY done as it lists both money given as direct grants and money given for work done for the government together. So apart from the name of the organization, you can’t really tell whether it was a ‘handout’ or a bill. Maybe AV Cell did some work for the province that was worth $7 million last year, I don’t know. Maybe the Burger King in Fredericton catered $50,000 dollars worth, again, I don’t know.

    However, there are a number of film companies listed, maybe some of them did video production, but I bet a good number just got money.

    So again, it comes down to the best way to foster economic growth. We know, for example, that tax credits are one way. We know that grants are another. We know that equity investments are another. Even the petition acknowledges, what was it, 15 million in equity investments. That’s no different than what other industries get-Radian6 got $350 grand. Equity at least means the government gets a piece and either makes some money, or gets some assets back during bankruptcy. That’s better than outright grants, which never get returned. And to be fair, I think the use of grants in decreasing all over-except forestry.

    I would debate cancelling the equity investment-but on cultural grounds. However, to KEEP the direct subsidies while getting rid of the tax credits is poor policy on ECONOMIC grounds.

    And for my final point here, I’d argue that MORE emphasis should be placed on this industry because of cultural grounds. Dudes. On cultural grounds english New Brunswick is as barren (publicly) as a Nevada countryside. Heck, even if you have to expand the country music scene, which seems to be the biggest thing in Fredericton, its at least SOMETHING.

    And by the way, in those public accounts there was pretty substantial money (I forget the amount) that went to….yes, TVO!! That’s right, TVO here in ontario is getting money from YOUR government. I’ve said it before, the government would be FAR better off just opening a youtube account, giving a small stipend to small producers, and paying for it with all the tourism and other ads that it currently hands out to Irving and CBC. Instant culture, instant revenue, and an instant industry with very little outlay. Hell, I’d donate money to it.

  2. Chris Baker says:

    David –

    It appears that there are two options when it comes to this public policy debate – speaking truth to power or spreading lies among the powerless. You have chosen the former over the latter.

    Remember, the only problem with taking the high road is that you are always walking uphill.

    Cheers,

    Chris

  3. scott says:

    The bottom line is this. Much of New Brunswick’s economic development thinking has been follow the pack. We mimic what other provinces are doing and get marginal benefits. On a GDP basis, Nova Scotia’s film industry is almost three times larger than New Brunswick. But this comes at a price. Subsidization is even higher in Nova Scotia.

    Can’t say I disagree with any of that. It’s too bad that sometimes the focus gets put on renewing a subsidy or targeted credit (because everyone else is doing it) rather than creating a true competitive advantage.

  4. Just a quick question for those in the industry because Mikel and others have suggested this tax credit is a non-refundable tax credit (i.e. you only get back what you pay in taxes). I was under the impression it is a refundable tax credit – i.e. you get all the eligible amount even if you pay very little taxes.

    According to Pricewaterhouse Coopers, the film tax credit is refundable which means the producer gets the full amount even if it exceeds total taxes paid.

    http://www.pwc.com/ca/en/entertainment-media/tax-clip/new-brunswick-tax-credit-extended-2009.jhtml

    Can anyone confirm if this is a refundable or non-refundable tax credit?

  5. mikel says:

    Actually, not sure I have suggested that at all. I doubt very highly whether most film productions make much money at all. I know some people in the industry and they are in it quite literally for the love of it, and for the experience.
    My point is simply that it is a tax credit on LABOUR. So as an economic motivator it, by definition, means that the producer HAS to spend X amount on labour. The ‘payoff’ doesn’t come in the form of taxes, but in the form of JOBS, and these jobs then pay income taxes.
    What the company pays in taxes is irrelevant, just like in Forestry the province hasn’t gotten a dime from Fraser in over a decade, and other forestry companies are allowed to carry losses forward for something like five years.

    And just to make a final point, the province is being a bit hypocritical. The argument is that without this credit the province would have X more dollars-which it sorely needs (of course this assumes that next year all these companies will still hire the same number of people even without the credit, which is unlikely).

    In other words, the argument is for the ‘opportunity cost’. Well, there is also the ‘opportunity cost’ of,say, raising the corporate income tax rate. IF the province ‘sorely needs the money’, then there is the benefit of raising the CIT. But wait, the counter argument will be “oh, but if we do that then those companies will leave”. Well, that is EXACTLY what the repercussions of THIS industry is. So therefore, the government really can’t make the argument about the ‘cost’, without being completely hypocritical. If it needs more cash right now so badly-raise the corporate income tax rate.

    However, that is something that would have been a nice negotiating tool-if the government had even bothered to talk to the industry. Changing it from a refundable to a non refundable would get the government more tax dollars from productions, and ensure that they paid attention to the bottom line. From a job creation point of view it makes no difference whether the company makes a profit or not. Many industries in NB are actually Co-Ops-the benefit comes from the jobs, not from the ‘profit’. Although I seriously doubt most producers would complain about making money.

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