Canadian Heritage Minister Steven Guilbeault participated in an online town hall with the music sector yesterday. When participants raised the prospect of relaxing social distancing rules to one metre in order to support live music shows, Guilbeault rightly noted that he was unable to help as the issue was outside his jurisdiction. Instead, he volunteered that his government would be supporting the industry through digital taxes, CRTC regulation, and mandated Cancon requirements. The response was typical of the government’s approach on cultural issues. The film and television sector, has asked for government support in the form of COVID-19 insurance to help get productions off the ground, but the government has not acted, instead pointing to Internet regulation. The news sector wants the millions in support the government promised months ago, but instead it gets promises of Internet regulation.
As industry identifies the policy measures that would help get their sectors restarted, Guilbeault has emerged as the leading government voice for Internet regulation as the alternative solution. The approach represents a terrible bungling of the Internet regulation file dating back years, with the government now posed to adopted harmful policies on non-issues and largely leave the real Internet policy concerns untouched. The plan – which Guilbeault has spelled out in multiple media interviews (and for which Innovation, Science and Industry Minister Navdeep Bains has remained puzzlingly silent) – involves new digital sales taxes, massive new powers for the CRTC to regulate payments from online services and mandate Cancon contributions, and new requirements for Internet platforms to pay licensing fees for links to news articles.
The harm that will come from these policy choices is difficult to overstate. By focusing the tax burden on sales taxes rather than technology company revenues, consumer costs will go up and the company profits will be left untouched. The CRTC powers will lead to years of hearings and follow-on litigation, yielding few tangible benefits for creators. The mandated Cancon contributions will spark trade wars and make Canada a less attractive market for new services leading to fewer choices and less competition, while the link licensing requirement will result in blocked sharing of news articles on social media sites that hurts both Canadians and media organizations. All the while, the issues that really matter – privacy, anti-competitive behaviour, online hate, misinformation, a fair share of tech corporate profits – are left largely untouched.
How did the government end up with the worst of all worlds on Internet regulation?
The starting point was the 2015 election in which it committed to no new Netflix taxes (prompted by a Conservative pledge on the issue) and subsequent consultations on everything from copyright to digital cultural policy. The result was then-Heritage Minister Melanie Joly struggling to honour the no-tax commitment, while satisfying increasingly vocal demands from some stakeholders for one. Those calls increased after the results of her cultural policy consultation were released, which largely focused on a rejection of new Internet taxes and support for net neutrality.
In the aftermath of the Cambridge Analytica scandal, worries about Russian election interference, and Christchurch massacre broadcast live online, the policy winds shifted and the government was clearly looking to become more active on the Internet regulation file. That led to Election Act provisions that were generally viewed as successful. It also paved the way for a 2019 election platform that was far aggressive on social media and the Internet, with commitments to address everything from privacy to hate speech online.
While there was room to develop sensible policies within that platform, the past year has been a complete mess:
- the government committed to introducing taxes on the revenues of tech companies in its platform (even including it in the costing estimates) and to participating in global discussions on digital sales taxes. When the U.S. made it clear that it would retaliate over the tech revenue taxes, the government flipped positions and will now move forward with digital sales taxes instead. Digital sales taxes are fine, but technology companies don’t pay the tax, consumers do.
- the government is anxious to address online speech harms, which is a difficult balance to strike given our Charter of Rights and Freedoms protections. The issue made more challenging by the USMCA that the government negotiated, which commits Canada to an Internet safe harbour for platforms.
- the government promised hundreds of millions in labour tax credits to support the news sector. When it failed to deliver, it searched for an alternative such as link taxes.
- the government embraced the Broadcast and Telecommunications Legislative Panel report seemingly without contemplating the implications of news regulation and extending Canadian Internet regulatory rules to services around the world. Guilbeault supported news regulation and was then forced to backtrack
- Innovation, Science and Industry Minister Navdeep Bains was given shared responsibility for these issues, yet has remained largely invisible on them for months.
- Guilbeault characterizing social media site linking to news articles without a licence as “immoral and unacceptable.”
What comes next?
If the government were to address the real concerns, there would be long-overdue privacy reforms, a more aggressive approach on competition issues, measures to address online hate and misinformation, and pursuit of a global agreement on fair taxation of technology company revenues. If it wants to support increased film production from indigenous groups or help the news sector, it can make those policy choices and use general tax revenues without creating a massive regulatory infrastructure.
Instead, it is turning to the harmful policies noted above that raise consumer costs (digital sales taxes), regulate online Cancon with mandated spending requirements (even though the industry has record production led by Netflix), dispense with any pretense of maintaining net neutrality, lead to blocked sharing of news articles (mandated licence for social media sites merely for linking to news content), and result in services avoiding the Canadian market (market interference in payments from services such as Spotify). Much of this will be overseen by the newly empowered CRTC, leading to lengthy hearings that primarily benefit lawyers. After having badly mishandled Canadian digital policy, the government now seems content to take a pass on the important issues and leave the controversial non-issues to the regulator and the courts.