1st EU-Eastern Partnership Forum by Marco Fieber (CC BY-NC-ND 2.0) https://flic.kr/p/bFPz9X

1st EU-Eastern Partnership Forum by Marco Fieber (CC BY-NC-ND 2.0) https://flic.kr/p/bFPz9X


The Best of a Bad Situation?: Why Tax Incentives Are Better Than Regulation and Cross-Subsidization to Support Canadian Journalism

The challenges faced by the Canadian media sector represent an incredibly challenging policy issue for the government. The struggles to adapt to heightened competition in the digital environment – the local paper now competes with a myriad of alternative choices – has led to layoffs, closures, and intense lobbying for a bailout. For the past few years, the government has largely resisted the lobbying efforts, recognizing the risks to the independence and trust in media that can come from government funding for the media itself. While concerns about government influence over the media and journalists are nothing new (I appeared before two Senate committees yesterday which both featured prominent former journalists), there is a difference between the prospect of future appointments and the perception of cash for favourable coverage.

Notwithstanding the misgivings, the Canadian government yesterday announced plans to supplement its support for the struggling media industry with a trio of tax policy reforms: the prospect of charitable donations to non-profit journalism organizations, a refundable tax credit to support labour costs for news organizations, and a non-refundable tax credit for Canadians that subscribe to Canadian digital news media.

The plan quickly attracted applause from groups that had been lobbying the government for months for support and criticism from those concerned with undue government influence over the media. While the charitable donation approach is common in the U.S. and the tax credit for subscriptions might entice some to subscribe to digital media, the plan to convene an “independent panel” to determine who qualifies for the tax credit for labour costs looks to be a problematic implementation of the proposal. Critics will rightly point out that it could lead to greater media mistrust with fears that organizations try to garner support with the government in order to obtain the necessary tax accreditation. Moreover, the proposed solutions, which are estimated to cost $595 million over five years, won’t change the structural challenges faced by the industry and might delay much-needed innovation.

Yet despite the significant concerns about tax credit implementation, the approach is better than many of the alternatives that have been raised in recent months. Groups have lobbying for a link tax, restrictions on fair dealing, taxes on Internet services, regulation of Internet platforms, or income tax reform that would have raised advertising costs for Canadian businesses. Many of these alternate proposals were based largely on visions of either cross-subsidization (Internet users subsidizing the news industry through higher access costs) or increased regulation designed to make Canadian news services more competitive by making the competition less so.

Instead, the government is focused on using its most effective tool in the toolkit – tax policy – to create incentives to invest in the sector and continue the shift to digital. Setting aside the implementation concerns, that is good news from a policy perspective since the approach may foreshadow the outcomes of similar battles over telecom, broadcast, and copyright policy where the same cries for government intervention are often heard.

For example, the Broadcast and Telecom Review Panel was asked to consider whether changes were needed to support the continued viability of local news. That question has been answered by the new government policy, which should serve as a model when demands to levy new taxes or restrict fair dealing are made to “save” broadcasting, publishing or the music industry. There may be a reasonable debate over the benefits and risks of government support for these sectors. But if the media, broadcasting, or publishing needs public support and the government believes it is in the public interest to do so, funding should come from general revenues as part of broader government policy, not through cross-subsidization and a myriad of levies that run counter to other policy goals such as affordable Internet access and marketplace innovation.