Contra Finance - A polemic on Finance's press backgrounder

As part of the press briefing process for the 2015/16 Budget, the Department of Finance distributed a handout on the Film Tax Credit. This was apparently the source of many of the numbers and views attributed to the government regarding the film tax credit. However, this document was supprisingly difficult to get ahold of. It was apparently distributed only as a two-page paper handout to reporters - there was no electronic copy posted with the rest of the budget documents. I made a repeated request to the department to obtain a copy, with no result. and I finally had to pester a couple of reporters until I got a scanned copy from a Globe and Mail reporter in Toronto!

This difficulty may simply have been to save the department's blushes. When I finally obtained a copy, it seemed to rather a mess, with confusion of various fiscal and tax/calendar years referencing the figures given for wages and spending for the single year provided. There was what appears to be a ridiculously roundabout and inaccurate attempt to calculate jobs ("FTEs") that could have been done directly. The government's own figures for annual production volume are unexplainedly ignored. And this is not to mention the flavour of a slanted takedown to support a pre-determined political message, rather than an honest effort to determine the costs and benefits of the program.

Below is the text of the handout (beige background), and my own thoughts on it (in red). A work in progress...

In 2014/15 the cost of the Film Industry Tax Credit was $23.5 million.

Film production associated with the film tax credit was $66.8 million, as the total spend of $122 million includes other things which are not related to the NS tax credit, like news shows, sports and current affairs by broadcasters.

As seen below, the $66.8 million figure is for fiscal 2013-14, not 2014-15. The 2013/14 cost of the FITC should have been included here so all numbers were referring to the same fiscal year

$122 million is CMPA "production volume" (see below for discussion of this term, and CMPA numbers). It is not "total spend" by the industry in Nova Scotia. Also, again, this value is for the 2013/14 fiscal year, whose tax cost has not yet been introduced.

For every production dollar spent in NS, the government provides 35 cents. This is the highest level of government support across all industries.

For FITC-related production, the province provides a subsidy of about $42K per direct FTE employed, and $17.6K for direct and spin-off FTEs employed.

As we will see in the details section below, these numbers are likely incorrect (actually too low) on the department's own reasoning. However, very questionable usage of the CMPA numbers results in a much larger error in the direction of being too high.

In terms of NS provincial corporate taxes paid by applicant and parent companies receiving the credit - they pay less than 1% of the value of the credit in taxes. The remaining 99% is a subsidy to the applicant company.

See Screen Nova Scotia's handy animated video for their explanation of why single-purpose companies are set up. There are no profits to be taxed on production as such.

In 2013-14, the last year that complete tax data is available, $26.4M was spent on the film tax credit, of which $66.8M was NS production costs, and $39.4M is salaries and wages. The revenue from personal, consumption and corporate taxes is estimated to be about $6M. This means for every $1 of the tax credit, the government receives less than $25 cents back in taxes.

As we will see, there is something funky with the government's numbers, as $26.4/$39.4 produces a 67% total rebate rate, which should be impossible given a 65% maximum, which not all productions will be able to fully claim. The uncertainty of the $26.4 figure would only make this rate problem worse.


In fiscal year 2014/15 the cost of the FITC was $23.5 million In the 2014 tax year, the cost of the FITC was $26.8 million

Does "2014 tax year" mean "2013-14 fiscal year" (April 1 - March 31), in the same way that "2014/15" presumably does for $23.5 million? Or is $26.8 million separately calculated for the 2014 tax/calendar year (Jan-Dec)? This calls into question as to what period the $39.4 million in wages and $66.8 million in total spend actuall refer to, and whether we have the FITC cost for the equivalent period (the "67% problem, above).

A Globe & Mail story "The Nova Scotia film tax credit – a numbers game" included a chart "Cost of the Nova Scotia film tax credit since 1998" sourced to the Nova Scotia Department of Finance, giving 17 years of annual data on the cost of the credit. $23.5 million was given as the value for "2014", so presumably fiscal 2014/15 and the same as the above. However, "2013", presumably fiscal 2013/14, is given as $27.38 million. This does NOT match with the $26.8 million above. It is possible the G&M has a typo. The Associate Deputy Minister gave a "$27 million" figure to the Public Accounts committee, which could either be $26.8 million rounded up, or $27.38 million rounded down. I haven't been able to get a copy of the original source material from the G&M chart.

A value of $27.38 million instead of $26.8 million would tend to bump the "subsidy" numbers below up slightly.

The total volume of film and television production in Nova Scotia is $122 million.

As noted, this data is from the CMPA Profile 2014 report. The CMPA uses the term "production volume", which is a synonym for the total budget of a production. For provincial breakdowns, CMPA allocates the entire budget to the province of "the place of business of the majority partner of a production". Depending on the details of "majority partner", it certainly seems possible that something like "Haven" might be allocated to Ontario (home of Entertainment One, the primary backer). Aside from allocation, a foreign co-production such as "The Book of Negroes" would report their entire production budget, including amounts spent on principal photography in South Africa. For a number of reasons, CMPA "production volume" should probably not be treated as the same as "total spend" within a particular province.

In any case, it is somewhat odd that the government uses this number. The Film & Creative Industries agency of the government (which managed the tax credit applications) produced a table of what it called "production volume" (definition and methodology not given). With access to FITC applications, FCINS presumably is able to more accurately identify production activity related to Nova Scotia. Why the government did not use their own statistics rather than the CMPA production activity numbers is not clear, and would seem very questionable.

The FCINS number for 2013-14 is $139 million, instead of the $122 million from CMPA.

In 2013/14 $66.8 million was spent in NS attributable to the FITC. The $122 million includes production not attributable to the NS FITC because it also includes:

The government should easily be able to provide a FITC "production volume" number directly, by totalling the "Financing Information" from the same FITC applications that produced the $66.8 million in NS spend and $39.4 in wages.

Economic impact of film spending is not the same as provincial tax revenue that government earns In terms of NS provincial corporate tax:

The direct return for FTEs working for the film industry related to the tax credit is calculated as follows:

Associated with the $122M of total film and television production in Nova Scotia, is the employment of 1,140 direct FTEs in the industry

As we've seen above, use of the $122M CMPA "production volume" number is problematic. But it is the basis for the CMPA FTE numbers as well. However, the CMPA report provides the methodology for their FTE calculations, and it is simple to use that with other values. Below, I'll give "corrected" values using the FCINS' $139 million value instead of $122 million, just for interest. However, they mainly use this to calculate the 54% number, which as I'll argue is misleading, and their comparable FTE results are more properly calculated directly without reference to total production

An FTE is a "full time equivalent", a "job" assuming a certain amount of annual income. For Nova Scotia, CMPA adjusts an average wage for the Canadian film industry ($59,400, from Statistics Canada) to reflect the fact that Nova Scotia's overall wages are 90% of the Canadian average. This implies an FTE salary of $53,421.