Non-Environmental Cost-Benefit News

British Columbia appears poised to offer improved incentives to its $1-billion dollar film industry, as it tries to level the tax playing field with other Canadian provinces, including Ontario.

B.C. Premier Gordon Campbell is set to hold talks with film sector officials this week, a sign his government may be prepared to match Ontario by raising the tax credit on foreign productions to 18 per cent from 11 per cent.

"The Premier has been asked to become involved with discussions with the industry about some of the issues it faces," said a spokesman for the B.C. Ministry of Finance.

They include concerns that, after years of growth, the industry is about to succumb to the impact of a strong loonie and competition from other Canadian and U.S. jurisdictions.

If B.C. does not increase its tax incentives, key players such as Lions Gate Entertainment Corp. and Brightlight Pictures Inc. have threatened to move productions outside B.C., a move that threatens up to 35,000 jobs in the province.

"This is a very portable industry," said Peter Leitch, chairman of the Motion Picture Production Industry Association of B.C.

"So it is either ours to maintain or ours to lose.''

Industry officials are hoping a decision will come quickly as this is a critical time of year, when decisions on where to shoot pilots and feature films are being made.

"We feel quite confident that a positive decision will be made quite shortly," said Neal Clarance, a partner with Vancouver chartered accountant Ellis Foster.

His confidence is based on a cost-benefit analysis of raising the tax credit on foreign productions by another seven percentage points.

It shows that the amount of labour, provincial sales and corporate tax collected on film productions would more than cover the increased tax credit paid by the provincial government.

"This doesn't take into account the fact that the government gets the benefit of dollars being paid [by the industry] and only pays a subsidy after the films have been made," Mr. Clarance said.

The cost-benefit analysis also excludes the spinoff effects of money spent by the film sector on everything from hotels to lumber.

Still, a prominent B.C. economist believes improved tax credits won't stop the industry from shrinking in the near future.

Jock Finlayson, a vice-president with the Business Council of B.C., said the province's film sector is highly vulnerable to the fact that 88 per cent of its production activity is driven by U.S. movie and television firms.

With the Canadian dollar trading at 83 cents (U.S.), he expects production activity to have fallen by as much as 25 per cent last year from a record $1.4-billion in 2003.

"In my view, it is going to continue to decline regardless of whether the B.C. government offers tax incentives or not," Mr. Finlayson said. "It is just a question of how much."

For that reason, Mr. Finlayson said the government needs to take a closer look at its film industry to determine how viable it is going to be in the long term. "That is the fundamental question," he said.

He said B.C. is facing unprecedented competitive pressure from other U.S. states, which are offering their own tax incentives in a bid to lure the film industry.

Louisiana, for example, offers income tax credits of up to 15 per cent for investment in movies made in the state, as well as a credit of up to 20 per cent for payroll exemptions. Projects with budgets of more than $250,000 are also exempt from paying sales tax.

Mr. Leitch admitted that production activity in B.C. has slowed from record levels seen in 2003.

"We don't have the luxury of a low dollar any more, so we are going to have to work harder," he said.

But Mr. Leitch said he is confident that the provincial government recognizes the importance of the film industry and the fact that it has cut costs in a move to become more efficient.

"We are going to fight to maintain an industry here."

by Peter Kennedy

The Globe and Mail