Saturday, April 2, 2016

Film Tax Credit April Fools'




As some of my readers would know I’ve been speaking and working with many people and community groups across the province on a number of issues facing the Nova Scotia over the past few months. My experience with how the Film Tax Credit fiasco played out is one part of that. With everything that happened April 1st (and with some knowledge on the day what some in the industry expected would be announced) here's my view of the latest in this situation. It forms pretty well an entire chapter in my upcoming book. I can cover more of the political back and forth in the book, but here's my perspective as it relates to the now infamous release of April Fools' Day.

A Personal Issue

The issue was personal to me from the beginning for a lot of reasons. The business I ran before politics was involved in the industry but never applied for or sought tax credits directly. The business was involved in a number of ventures from social justice, to energy and environmental work, leadership and communications consulting, and media. However, the roots of that business and half the business revenue before I entered politics, was television and print media. I was fortunate to secure full financing for most television projects we did. For many other television projects the work was international and simply didn’t qualify. Nonetheless, the business benefited from the tax credit indirectly. There was access to more rental gear, crews, editing and shooting facilities, and we did a lot of work on or with some of the films that were in town. There always seemed to be one underway.

The issue was also personal because I have a lot of friends in the business (here and elsewhere). I was privileged to chair the Cultural Advisory Committee for the municipality for a couple of years and we’d done a lot of work showing the economic value (let alone harder to measure reputational, quality of life, and tourism values) of cultural industries such as film, theatre, symphony, and so forth. To risk crushing an industry went against what we tried to achieve on that committee. (Mayor Savage, a Liberal himself, and Andy Fillmore, a federal Liberal candidate, would also speak to their concerns about changes)

If you care, you can read a lot more about the personal side of issue to me, the struggle with it, and the political behind the scenes stuff that went on when the book comes out. But for now, turn to March 2015 and I was like most people in that the first whiff of possible changes to the Film Tax Credit I heard were in reporting of then Finance Minister Diana Whalen’s speech to the Chamber ofCommerce last year. Suddenly a lot of friends from my past were calling and e-mailing.

Budget Changes Film Tax Credit

I read and re-read Diana’s words as reported in the media at the time, and knowing the election commitment (and Diana’s own personal commitment to the industry in opposition) I made the assumption that what was in the cards was either (1) some kind of working group to examine the film tax credit program over the next year; or (2) a small reduction in the percentage credit on the film tax credit. As I talked to many friends at the time it never even occurred to me the changes would be as ultimately tabled in the budget speech. I was wrong.

The budget speech outlined significant changes. We were told many things, including the fact other provinces were making changes too (Ontario did announce changes, but then put them on hold, Quebec tinkered with the system somewhat). I met with many people I’d known a long time (and many people I just met) from the industry as the budget debate went along.

Meetings were scheduled with industry as the reaction was recognized. Changes were made to the originally announced proposal, and it appeared for a time they had the support of Screen NS (this proved to be a gross overstatement). The animation sector was largely returned to the same tax credit system they had before. Feedback from people in the business suddenly became a weird mix of people thinking they could make the new system work (though not supporting the changes) and those who predicted dire consequences. Recent reports, including the information from the Director’s Guild showing the massive drop in taxable income in the industry, showed the consequences became real. To his credit, Business Minister Mark Furey has not disputed the numbers showing the impact on the industry.

Over the time budget was debated, I’d start the day sitting with friends from industry, and even my own riding association, who were angry about the mess, and we’d talk about options. What changes were needed? Would a delay help? Was it better to affect change from inside or outside? What did the changes mean? Was the budgeted funding a soft cap or a hard cap? What about equity investments? What about location scouting?

There were a lot of questions. There were also a lot of red herrings (the possibility of losing Haven was raised a lot, but media reports had already stated it wouldn’t film in 2015 and might be at the end of the series). From a public perspective, the budget vote got a lot of attention, despite the fact the budget changed nothing and continued the $24 million line item

Financial Measures Act

More significant would be the Financial Measures Act or FMA (Graham Steele did a great job of trying to explain the differences to people and why one mattered and one really didn’t on this issue). To complicate matters further, not only did the FMA include many other elements to implement the budget, but in the parliamentary system a vote for or against the FMA is primarily a confidence motion meaning its defeat triggers an election. Yep, many people protesting around the legislature would have said they wanted an election. If a few people had voted against the FMA and an election was triggered it’s almost certain the results would have resulted in a legislature which looked very much the same as the old one and the budget and Financial Measures Act, as it was, would have still passed.

For me and some of the people I was talking with over that time, we saw that changes had been made. Animation credits had been restored, the fund rules had been amended, and the finance department had changed how funding from Eastlink would work.  It appeared government was open to change and open to recognizing what they did not know. There were promises that the impact would be watched, and if additional changes needed to be made they would be. Screen NS seemed to be saying they were working with government, that they could make the changes work, even if begrudgingly. Based on the number of very senior Liberals expressing concern (more on that in the book), it seemed like, despite the mess, it would all work out in some fashion. Or at least that’s what I thought. It was a mess, but it could be fixed and cleaned up. Policy proposals don’t always work out in government, we have to accept a stumble now and again, and it seemed to me this one would ultimately work itself out and balance would be restored to the world.

An Uncertain Future

My expectations didn’t pan out. My prediction was wrong. In fact it became worse. Ultimately more important than the FMA, would be regulations and decisions that would come long after the legislature wrapped up. Initial regulations came out prohibiting reality TV from using the new fund, as though reality TV meant game shows like Survivor. It completely missed the point that shows like the hugely popular Hope for Wildlife series were also reality TV. A decision was made somewhere not to respond to concerns raised by the Canadian Media Fund that the new program (as structured) would result in an inability to access federal funds (John Wesley Chisholm has written at length about this). International trade shows to promote Nova Scotia as a destination and work done in our province went unrepresented, while other provinces showed off their wares. Film and television suddenly became the only major export industry in the province not being supported on the trade show side by ministerial and other support from the government and its agencies.

By late fall the dust had settled. Fact from fiction was suddenly more easily seen. The impact on production was very clear even in a partial year of the new fund. Despite the concerns, the Premier was quoted in the media as saying that he had moved on from the issue. Moving Diana Whalen out of Finance was, many believe, an attempt to unfairly leave her with the sole blame for the issue and move on. Unfortunately the many people who had less work, or no work, or who had moved away, could not move on from the issue.

Internationally the reputation of Nova Scotia is, at best, stained. Someone who worked in the US industry I spoke with in Florida in late December told me he thought Nova Scotia had decided to stop permitting productions. All he knew was what he would catch in industry publications and social media, but it did make me wonder how widespread those sorts of feelings were. If a lot of industry decision makers thought Nova Scotia was now closed, what would it take to bring the business back?

A Political Calculation?

I don’t know for sure. And I certainly don’t know who made the decision. But I think what happened was a political calculation. Moving on was a recognition the votes had already been lost, so fixing it now wouldn’t get them back. Public policy should be about admitting errors and recognizing when something doesn’t work out as you thought it might. That was done with the Pharmacare changes because the reversal was swift enough so as to save many of the votes. It was unlikely those who changed their mind on the film issue were going to return no matter what decision was made. So there was little political benefit to make significant reversals.

Frankly, I was surprised earlier this week to hear talk the government might actually consider significant changes to the Film Tax Credit. But I was eternally optimistic. For those following the issue, they know that Screen NS expected something quite different to be announced on Friday April 1st. Not a return to the Film Tax Credit of old, but some changes at least. While the federal Liberal Party is a separate party from the provincial Liberal Party (that much should be obvious to people these days as many of the policies are almost opposite, and Trudeau’s own pitch this weekend to have a renewed – and separate – federal party constitution) the new investments in film and television (and culture generally) at a federal level were something I thought provincially there might be a desire to tap into. I thought that might be a reason for changes.

Instead what was announced was called a clarification but was little more than the exact words that were repeated during the FMA debate of last year that productions would be considered even if the budgeted amount of the new program was exhausted. It’s easy to say. There is no chance it will be exhausted this year because the nature and type of funding simply doesn’t trigger some of the other funding sources. As well, considering projects on a case by case basis sounds like political decisions being made about individual projects after the cap is reached.

I think that same political calculation I mentioned earlier repeated itself Friday, resulting in industry feeling they got misled once again. There are many snippets and information filtering out from departmental offices (and even the premier’s office) about what transpired on Friday (helps when you have a department full of staff who also had their own expectations), but in the end, nothing changed. Even Minister Furey didn’t know why he was speaking to media.

Last year’s vote on the FMA continues to bother me. That issue did not at all end up being resolved how I thought it would. I believed politically and economically recognizing the damage the changes did would mean fixing it.

I personally know (and hear from) people who dislike the idea of the Film Tax Credit because they oppose subsidies (or tax credits) to business. The reality is these things still exist. The Film and Television Tax Credit was, at its core, little different than a payroll tax rebate in how it was executed. Despite misinformation to the contrary, the rebate (or subsidy or grant or whatever you want to call it) to a project was much less a percentage of a project than you might think as it only applied to a narrow band of expenses. Nonetheless, these subsidies exist in Nova Scotia with animation as they always did, and they exist in the province in many other industries.

In retrospect, the Film and Television Tax Credit was one of the few business assistance and attraction programs that saw an equal playing field for small and large businesses in any industry. Similar support also exists in many other provinces and some US states, which makes regional competition important as a consideration as well. With the very low dollar, and low oil prices, this year should have been a banner year for the film industry (and next year should already be planned out). All data, no matter how you look at it, shows it’s not.

There is almost certainly a net loss in provincial revenue when you include lost income, commercial, and sales taxes, though that will be tough to get a real number for. Government and opposition will argue about that issue I am sure.

Government may have made a bad situation worse with its April Fools' Day misstep and turned it into a story again. No government is cruel enough to make an April Fools' joke, so while that plays out in social media, it seems more like a political calculation was made that the votes were lost and money and effort was better spent elsewhere.

Screen Nova Scotia for its part has a new Executive Director in Erika Beatty. She has a monumental task representing an industry of somewhere around 3,200 people with $150 million in annual revenues. I have known her since my days on the municipality’s Cultural Advisory Committee and she is a great choice for the job. But in her first hours on the job it seems she, and the industry generally, are facing the same frustrations Marc Almon faced as Screen NS chair last year when they were leaving meetings understanding one thing, only to reach a new understanding later on