Fraser Forum

On balance, a Netflix tax would be better than this

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Comparisons with friends suggest lots of Canadians’ daily TV now involves: some live sports, in our case the Montreal Canadiens, viewed on delay so as to fast-forward through commercials and between periods; some live news, also delayed so as to fast-forward through commercials and all stories motivated by political correctness and virtue signalling; and an offering or two from Netflix, which has more than six million subscribers in Canada now and no commercials to fast-forward through.

Another nice thing about Netflix: it’s tax-free. Or at least it has been tax-free. We in Quebec will soon be paying QST on it, QST being our add-on to GST. “And why not?” the economist in me says (even as the consumer says “Bloody hell!”). Netflix is providing a newly-produced good or service that I’m consuming. Value-added taxes like the GST and QST are supposed to be applied to the consumption of newly-produced goods and services. So why shouldn’t Netflix and Uber and Airbnb and all the other new suppliers that have come on line via the Internet have to pay them, too?

From Adam Smith on down, economists have always argued that governments should observe a scrupulous neutrality between industries, production techniques, forms of organization—you name it. Internet supply has obvious economic advantages that the market will reward. It doesn’t need tax advantages, too. Plus, if you tax all consumption without exception, you can get the same tax revenue with a lower rate. And your tax collection will be a lot easier. You won’t have to hire applied philosophers to decide exactly which goods or services qualify for which exemptions. No exceptions, no hassle.

Then, of course, the libertarian in me chimes in with “Are you crazy?” What are the chances a government that extends the consumption tax base by eliminating exceptions will actually reduce the tax rate? What we’re more likely to end up with is both a broader tax base and the current tax rate, with more of our money going to the government. Such is the way of all government. Better to grab any tax break, however arbitrary, dubious and expedient, wherever we can get it.

That rebel argument isn’t quite factual though, is it? We’ve already had one cut in the GST, from seven per cent to five, in 2008. It’s not inconceivable we could have more, albeit not from the current federal government.

A further and maybe decisive advantage of making Netflix pay GST is that the money raised would go into general revenues, instead of being directed, in a form of private, negotiated, ad hoc taxation, to the Canadian cultural lobby. Netflix wouldn’t have to undergo a reported 20 meetings with the ministry of heritage to work out a special $500 million investment deal promising to produce more movies in Canada—where it says it produces anyway because doing so makes economic sense.

In fact, with Netflix available as a distributor, the Canadian film and TV industry shouldn’t really need any further government assistance. In our household over the last couple of years we have watched really excellent TV—mainly murder mysteries, I confess—from Denmark, Iceland, Norway, Scotland, Wales, Ireland, Israel, France, France/England (co-production), Denmark/Sweden and of course, from the usual selection of English murder scenes in London, Yorkshire, Oxfordshire, Cornwall and so on. The murder rate on British TV is extraordinary as every year dozens of actor-victims make their own personal Brexits, often in the grisliest ways imaginable.

Netflix’s total subscriber base is now more than 100 million worldwide and still growing fast. It and similar services deliver great “cultural product”—as well as mediocre and bad, of course—from just about everywhere. The world is now, almost literally, any filmmaker or storyteller’s potential audience.

Netflix has also effectively internationalized the North American market. Like many on this continent, our family used to have subtitle-aversion. Not anymore. Netflix has got us used to reading dialogue, which we now do for the regional British shows as well as for the Swedish, Icelandic and Israeli. (What made us switch was comically bad dubbing on the Israeli suspense show, Fauda.)

The old argument for subsidizing Canadian movies and TV was that fixed costs are very high and you couldn’t cover them even in the world market because U.S. movie-makers typically dumped their movies into the international market at ridiculously low prices after covering their costs at home. Even if that ever was true, nobody treats the world market as an afterthought anymore. Now when you’re deciding whether to make a movie you take into account all revenues from everywhere. The world is everybody’s market.

The world. If you can’t make it there, you can’t make it anywhere. Nor should you.