Race to the Bottom: Why Government Tax Credits For Film and TV Production Don’t Pay

The Nova Scotia government has been embroiled in a high profile controversy for the past week following its decision to slash tax credits available to film and television production in the province. The decision sparked an immediate backlash from the industry, which staged a major protest last Wednesday across from the legislature in Halifax.

While the government’s approach is certainly open to criticism – abruptly cutting the tax credits without warning may force the cancellation of long-planned productions this summer – the larger question of whether it should provide massive tax relief to the film and television industry is an important one. Eliminating or cutting the programs is politically difficult given the star power associated with film and television production, yet a growing number of studies have found that film and television tax credits do not deliver much bang for the buck.

My weekly technology law column (Toronto Star version, homepage version) notes that the widespread use of film and television production tax subsidies dates back more than two decades as states and provinces used them to lure productions with the promise of new jobs and increased economic activity. The proliferation of subsidies and tax credits created a race to the bottom, where ever-increasing incentives were required to distinguish one province or state from the other.

In recent years, governments have begun to rethink the strategy. States such as Arizona, Michigan, New Mexico, and Iowa suspended or capped their programs. Louisiana found that it lost $170 million in tax revenue in a single year. In Canada, the Quebec government’s taxation review committee recently admitted that its provincial film production tax credit was not profitable and that numerous studies find that there is little economic spinoff activity.

But the most notable Canadian study on the issue has never been publicly released and is rarely discussed. The Ontario government’s Ministry of Finance conducted a detailed review of the issue in 2011, delivering a sharply negative verdict on the benefits associated with spending hundreds of millions of dollars each year in tax credits. It recommended eliminating a 25 per cent tax credit for foreign and non-certified domestic productions that would have saved $155 million per year.

A copy of the presentation to cabinet, obtained under the Freedom of Information Act, identifies at least four major problems with the provincial film and television tax credit approach.

First, rather than encouraging increased spending, government subsidies represent the majority of financing for film and television production. In 2010, tax credits, grants, and other public funding mechanisms subsidized approximately 60 per cent of all Ontario-based film and television production spending. Moreover, the corporations that claim tax credits pay no tax at all, with the total value of the tax credits being 6 times greater than the total tax income of domestic claimants.

Second, the sector is becoming more dependent on government support. In 1998, film tax credit expenditures constituted six per cent of production costs. Ten years later, there were fewer productions in Ontario, but the film tax credit expenditures were responsible for 30 per cent of the costs.

Third, the mounting government expenditures might be justified if it resulted in the creation of long-term high paying jobs. However, the Ontario government study found that film sector wages were below the provincial average and that many of those jobs were temporary, project-based ones.

Fourth, evidence suggests that other factors beyond tax incentives play a key role in determining the location of production activity. For example, the Ontario experience over the past two decades shows that foreign production is typically highest when the Canadian dollar is low relative to the U.S. dollar.

While the economic evidence to support film and television tax credits is weak, that does not mean that governments should not support the industry since the importance of culture extends beyond dollars and cents. Nova Scotia’s decision may be unpopular with some, but it is likely to be emulated by other governments as they assess how to support the film and television industry in a more economically responsible and effective manner.


  1. Frank Ch. Eigler says:

    “In 1998, film tax credit expenditures constituted six per cent of production costs.”

    How can a tax credit “cover costs”? It’s a reduction in tax-expense, not an increase in income. Perhaps folks are mushing together subsidies (bad) and tax reduction (good)?

  2. Really shallow, ideological and essentially dumb bit of parroting, Michael.

    You clearly do not understand either the way the film/television works or the way the tax credit system works yet you feel the need to blather. Interesting perspective on the rest of your writing. I had assumed you were always writing from the stance of someone knowledgeable with something useful to contribute.

    Thank you for disabusing me of that fanciful notion.

    • Well in that case, please detail where Geist is wrong, rather that just stating he’s wrong. Your post is about as useful as me saying “Excellent article by Geist. He clearly understands the subject, and makes his points in a clear and undeniable manner”.

      And, what’s the purpose of the link in your post? I see a big, scary looking warning when I go to it. Is it supposed to be something useful?

      • I see a study by the Saskatchewan Chamber of Commerce saying they and the Wall government were wrong about the tax credit system and that it doesn’t cost anything like they thought and should be re-instated. The Wallians of course won’t do that because ideology is more important than anything else.

        Read it or don’t. I don’t care. But saving a couple million while driving away 50 million doesn’t seem all that bright to me. Up to you of course, emporer.

      • So much ignorance only goes so far. I can contradict everything stated in the article above but I’ll keep it simple.
        First allow me to address this statement. ‘the Ontario government study found that film sector wages were below the provincial average and that many of those jobs were temporary, project-based ones.’
        What Government study? The average weekly wage in Ontario for 2014 is $935. I can assure you sir, without giving up my privacy, that my average weekly wage in the Film Industry of Ontario that my weekly wage is far higher than that. As to the part about ‘temporary, project-based jobs’ OF COURSE THEY ARE. Its the FILM INDUSTRY. A project comes into town, makes a movie, pays us well and LEAVES. Was that fact suppose to make a case against us?
        Point number two, the Film Industry brought in 1.29 billion dollars in 2014 just one under the highest ‘earner’ for Ontario which is Tourism! Are you going to try to tell me the tax credits are useless or unjustified?
        Point three, we the people of the Film Industry pay taxes on our wages. We support car rental companies, paid duty police officers (hired to direct traffic) the city of Toronto receives thousands of dollars for Permits we purchase for downtown parking spaces (which fix your pot holes and pay for your police and other projects btw) we support caterers, furniture and clothing stores, electronics, lumber yards, and paint supplies not to mention the businesses who directly supply the equipment used by the shooting crew, the list goes on and on.
        20,000 Ontarioans are directly employed by the Film Industry.
        The facts and conclusions stated in your article are nothing more than naive and ignorant opinion and conjecture.

    • For those who can’t access it: a study commissioned by the Sask. Chamber of Commerce concluded that “Since its inception the FETC has cost on average $2.3 million annually in net expenses when
      taxes returned to the provincial government are accounted for based
      solely on Saskatchewan employment and operational expenditures”

      Even in this study, the qualitative information re. relocation, etc. does support a narrative of a race to the bottom.

      Take it for what you will.

    • A paid consultant’s report which interpretes a study commissioned by a business lobbying group and concludes that those businesses should continue receiving large government subsidies should be obviously be read with some degree of skepticism.

  3. David Collier-Brown says:

    Thanks: that page rejects my shiny new copy of chrome as “too old”

    • Well, apparently, the Saskatchewan Chamber of Commerce thinks you and I “are using a browser commonly used by hackers, spiders or bots that are frequently used to probe for vulnerabilities that may exist on some websites.”

      Tried on Firefox and Chrome.

      I especially like the part where it threatens to report my IP address to the “proper authorities” because they’re apparently incapable of putting together a decent website.

  4. Well, if it means the end of “Trailer Park Boys”, that won’t be a loss at all to the world. I can understand getting a leg up when getting projects off the ground. What I don’t understand is continuing support. If something is good enough to be self-supporting, then it may deserve to live. If something needs a constant leg-up, then maybe it should be left to whither.
    The government is rife with programs of one sort or another that subsidizes all sorts of business with the ultimate goal that the return on jobs (and income return) far exceeds the money put in. If it turns out that supporting the “Boys” et al doesn’t pay, well, it just doesn’t pay. There are plenty of other sectors of our economy that could use a little help in supporting jobs.

    • Bob your ignorant!

      • Well no, “your” ignorant is actually ignorant. I don’t know if you meant it but technically it’s “you’re” ignorant. Just so you know for next time.

        And actually, to read an article and post no opinion one way or the other is ignorant. To simply reply to one post as you did is ignorant. At the very least, you could have stated what about my humble opinion does not jive with your opinion on the matter (which again, you failed to state at all).

        Over to you…

    • Eric Houstoun says:

      Yeah sorta like that lousy Breaking Bad show that had to be shot in New Mexico so they could afford to shoot it. Man what a piece of propped up garbage right? I mean if it was good enough to on it’s own merits they would have just packed it up and shot it all in LA!

      Yeah, that’s the kind of ignorance on display here. Shows of every calibre make use of tax credits, it’s not a crutch, it’s a practical reality for many productions.

  5. Jacques Valentee says:

    Would you close the national parks because they do not pay?

    American programming is sold in Canada for a fraction of its production cost. Slick, English language productions would become all that we’d have if the market was left open.

    Tax breaks encourage American companies to use Canadian sound stages, technicians, and talent. After they leave, we are free to use the sound stages, technicians and talent they leave behind.

    If not this program, then what Michael? Do we abandon the market, and our children, to endless reruns of America’s Got Talent? Or do we make our already stressed taxpayers cough up more? And how about the subsidies for music, novelists, computer games and the CBC?

    What’s the real goal in attacking the tax programs? What are the policy alternatives, and the costs – both those you can measure, and the costs to our identity?

    • “…we are free to use the sound stages, technicians and talent they leave behind.”

      You make it sound like benevolent American philanthropists are building hospitals, libraries and playgrounds for small towns across Canada.

      The film industry is not Andrew Carnegie. The film industry built sound stages and film studios in Canada because they relied on government subsidies to make them profitable. You are arguing that they “left behind” valuable facilities, technicians and talent but they are still demanding government subsidies to operate those facilities and produce new movies and TV shows.

  6. Liam Young says:

    This is a tricky issue and judging by the comments so far, a passionate one as well.

    Where my sense of sympathy starts to slip (and end) is when I suspect that a good chunk of the rebates / subsidies / grants etc go to very large companies that, frankly, do not need a penny of Canadian taxpayer dollars. Insert anti-corporate / media conglomerate rant here.

    Sure … the traveling minstrels that write cute songs about Canada should get a break and I’m sure there are many artists out there that are working to create a Canadian identity that Canadians may or not be seeking out.

    What we’re clearly lacking here is context and, specifically, data and facts related to who receives what, for what reason and when.

    Are there annual reports / line-by-line reports available to the public that address these types of questions?

    • I can’t speak for every tax credit everywhere, but I work in film on the East Coast, and the shows I’ve worked for are definitely not huge corporations. There’s a lot of home-grown talent that just wouldn’t be making it to screen without this kind of support – or at least not making it to the screen from here. They could probably move elsewhere and help line the pockets of large companies for real.

  7. Un-Trusted Computing says:

    As an alumni of the Canadian film industry, I tend to agree the various tax credits tend to promote a race to the bottom, and some seriously skewered accounting.

    I don’t think the answer is to get rid of all subsidies, but to carefully evaluate who we subsidize.

    The “who” being carefully determined in a policy paper that’s written before production companies start hoovering tax credits.

  8. ” foreign production is typically highest when the Canadian dollar is low relative to the U.S. dollar.”

    In other words, Canada is “United States of Cheap-merica”. We’re telling other people’s stories, to fill garbage channels like Lifetime and Hallmark and Syfy.

    The government should absolutely not be funding film or television. There are some (few) Canadian stories worth telling. And they’ll get told because they’re important — not because we’re cheap.

    • Indeed, government should not be funding television – they should be trying to eliminate it. A few creative people working in the industry will indeed have jobs, but their output will be keeping millions on the couch when they should be doing something useful.

      The government would do better to provide incentives for software development. We need to raise our Canadian code infrastructure out of the dark ages and to a level where we don’t see embarrassing situations such as displayed by the Sask. Chamber of Commerce earlier in this thread.

  9. Frank MaSSa says:

    Then u wonder why all CND productions are FKN C R A P & why they amount to N O T H I N G ! BS paperwork just so those fkn idiot producers & Production houses can get their nice tax credits and the content always suffers..

    Plz slash all Canadian film tax credits and lève the biz to the America’s and the francophones who make much bette Film & TV Series.

    Thx again to #VittorioRossi to his wonderful play….. #THEENVELOPE

  10. Another Idea says:

    How about instead of giving tax credits directly, we give consumers tax-credit tokens that they can spend on Canadian projects of their choice?