Liberals pushed film and TV subsidies despite internal concern

Investigative Journalism

Note: My investigative reporting took serious critical thinking and research skills. Learn more about my process.

Published via The Canadian Press, June 8, 2014.

Ontario’s Liberal government continued to give out hundreds of millions of dollars a year in tax subsidies to TV and film productions despite a scathing internal assessment that questioned whether the money was the best way to help the industries.

A Ministry of Finance presentation obtained by The Canadian Press through a freedom of information request is highly critical of the long-standing tax credits, which allow up to 45 per cent of labour and a quarter of other production costs to be reimbursed from government coffers.

The 2011 analysis said the credits don’t appear to make the media sectors “sustainable” by bolstering exports or keeping lucrative ownership of creations inside Ontario, instead leaving productions reliant on provincial assistance.

The document suggested that pivoting from the subsidies, which are handed out after projects have wrapped up, to direct funding could be a better option, calling the credits “not an optimal delivery mechanism” for aid.

“Stakeholders need financing up front — not an option in the tax system.”

The internal criticism gets to the heart of one of the themes of the June 12 election campaign: whether, and how, government should be lending a helping hand to industry in the hope of creating jobs.

Liberal Premier Kathleen Wynne has made business grants a big part of her platform, a pledge Progressive Conservative Leader Tim Hudak assails as “corporate welfare.” NDP Leader Andrea Horwath, meanwhile, has vowed to bring in tax credits aimed at boosting employment and manufacturing investment.

But applying the tax subsidies to what the province dubs the “screen-based sector” raised red flags among finance bureaucrats concerned with maximizing the economic impact of government spending.

Wynne defended the credits on the campaign trail Sunday, saying they’ve been a boon to employment.

“What we know is that the tax structure around films in this province has created tens of thousands of jobs,” she said.

The credits were first introduced by the Tory government of former premier Mike Harris in the mid-1990s in a shift away from grant-based support. Increased and expanded in scope under Wynne’s predecessor, the subsidies have become the go-to way Ontario encourages movie and TV productions to call “action” in the province.

Last year the government spent a record $343 million on the subsidies for culture industries, including print and music, in what was the single largest expenditure of all its arts and culture funding.

The lion’s share, about $310 million, went to the film and TV industries — which combined spent $1.1 billion on productions, mostly for domestic outlets — while $26 million was channelled to video games, which have their own tax credit.

Since 2008, $1.5 billion in tax subsidies has gone to movie and television projects, against $6.2 billion in production spending.

Grant funding to the industries is a fraction of that total.

The assessment says the credits already act as a direct funding transfer, as many productions have no taxable income and thus get the subsidies as cash in hand. But it also states they may not be flexible enough as the digital-facing industries evolve, and incur some pricey overhead costs and red tape for both applicants and government.

It notes several arguments for the credits — such as ensuring “competitiveness” by attracting productions that may otherwise head to other provinces or U.S. states, nearly all of which have their own subsidies — but takes issue with each one.

The document states the subsidies may be a “zero-sum game or simply a race to the bottom” as Ontario and other jurisdictions outdo themselves to offer juicier tax credits while the total number of film and TV productions remains static. It also suggests that production locations may be determined not so much by the subsidies but rather by fluctuations in the Canadian dollar and other factors.

And it also gives short shrift to the view that TV and film industries create high-paying jobs, stating that both average industry pay and sector growth fall below the provincial average.

But the head of one industry firm, production-equipment supplier William F. White International, called the assessment’s findings off base, saying the credits are “vital” for the TV and film business.

“If the Americans are doing it, we’re doing it, the rest of the world is doing it — there’s got to be something to it,” said CEO Paul Bronfman, whose company hosted a fundraiser for the Liberals last month.

“These tax credits are providing a level playing field for the industry,” he said. “It makes economic sense.”

Photo credit: torontocitylife/Flickr CC