Two-thumbs down for Manitoba film tax credits
Manitobans should understand that film tax credits are not worthy of support because they are really just unsustainable corporate subsidies.
This past summer, Manitoba's NDP government announced they will extend the Film and Video Production Tax Credit until the end of 2019. The credit was originally slated to expire at the end of 2016.
Provincial politicians argue they need tax credits to attract American productions. They claim these productions bring economic activity, local job creation, and tax revenues.
However, there are better ways for government to attract business besides corporate welfare. In fact, research has shown several negative effects of these subsidies. First, governments have a disappointing record of picking winners and losers. Credits are a drain on the treasury with very little economic benefit. They create an uneven playing field because, "the major effect of corporate subsidies is to divert credit and capital to politically well-connected firms at the expense of their politically less influential competitors." The result is the creation of huge market distortions and an incestuous relationship between government and business.
The Fraser Institute's work has shown that creating a hospitable environment for all firms is a more sensible approach than boutique tax credits. For example, lower taxes on businesses can spur economic growth and create additional economic activity because incentives matter. But the key, as the Fraser Institute points out, is lower marginal rates for everyone. Lower marginal rates influence decisions to save, invest, and be entrepreneurial, "not cherry-picked tax credits for this or that sector. Such favouritism actually hobbles overall economic growth, it doesn't help it."
There has also been research conducted on the impact of film tax credits in the United States that Manitobans should be mindful of.
For example, American economist Bob Tannenwald has found that, "the median state gives producers a subsidy worth 25 cents for every dollar of subsidized production expense." Tannenwald also found that these, "subsidies reward companies for production that they might have done anyway." His research has shown that generous subsidies to Hollywood producers must come from either cuts to government services or through tax increases. And that growing opposition to these giveaways transcends ideology and party lines, as both Republican and Democratic lawmakers have opposed subsidies that focus on narrow industries.
Further, production studios import high paying jobs from other states and only provide low paying temporary work for in-state residents. The Tax Foundation, a Washington, D.C,-based watchdog, has shown that the subsidies amount to simply moving jobs from California to other states. And of course, promised economic activity falls very short of the cost of the state subsidy.
As soon as the incentives are reduced or disappear, the film industry leaves. Government is bad at picking winners and losers. Instead, they ought to focus on creating a hospitable environment for doing business.
Manitoba taxpayers should take stock of the evidence and research on subsidies and reevaluate corporate subsidies in the form of film tax credits. Because the research has shown they are simply not worth it.
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