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Canada Subsidy War: Quebec Vs.
Ontario Vs. British Columbia

By Jack Egan

Canadian provinces, fighting to keep their slice of a shrinking film and television production pie, have in recent weeks leapfrogged each other's tax incentives to foreign and domestic producers.

In the latest development, the British Columbia government hiked the labor tax credit for foreign producers from 11 to 18 percent in mid-January. The B.C. government had come under intense pressure from Vancouver entertainment firms that were threatening to move over $100 million in pending productions to Toronto and even some locations here like Louisiana, which has become tax-incentive central in the United States.

The step was a reaction to the Ontario government's action in December to stimulate Toronto's slumping film production sector by increasing its own labor tax credit from 11 to 18 percent. That in turn triggered a decision by Quebec to one-up its neighbor, juicing its labor tax credit from 11 to 20 percent, so Montreal would regain some of its appeal.

The labor tax credit for Canadian production companies in all three provinces now goes to 30 percent. B.C.’s rise in incentives for foreign producers is retroactive to the beginning of 2005 for shows that start shooting on January 1 or later. They expire March 31, 2006.

The rapid sequence of jumps represents an effort to offset, in part, the impact of a 30 per cent rise in the Canadian dollar against the greenback over the last two years. At the same time, there has been an expansion of new federal and state tax breaks in the United States, ostensibly aimed at curbing runaway production.

Together these developments have dimmed the allure of "Hollywood North" as a low cost place to make shows. "It's cheaper to shoot in a bunch of places in the States than it is in Vancouver," says Don Ramsden, president of IATSE Local 891 in Vancouver, which has 4,700 members. "The increase in labor tax credits in B.C. at least puts me level as the chief negotiator in this jurisdiction. But I'm getting beat up on the table on contractual issues." He says business in Vancouver is down at least 30 percent from its peak two years ago.

The three boosts in labor tax credits effectively neutralize each other. Some worry that Canada's provincial governments are in effect just moving deck chairs on the Titanic. "If we continue to make decisions in isolation, we may simply end up shifting productions between provinces with no real gain for the country as a whole," said B.C. finance minister Colin Hansen.

Hansen has asked the industry to make changes that boost its productivity. and cut costs, and called for a study to determine how much further the government can go in using public funds to protect jobs and businesses before there's a point of diminishing returns.

"The government wants to participate in this study so it can determine what's the break-even point of giving out tax breaks in terms of benefits and costs to the economy," says Peter Leitch, chairman of the Motion Picture Association of British Columbia. "We don't want it to develop into a race to the bottom."

Some fear that's already happening. "We need some guidance to find a way out of this madness," says union chief Ramsden. He believes the studios and production companies here and in the U.S. are pitting the different jurisdictions against each other, as a way to get bigger and bigger subsidies. "A bunch of men with houses in Bel Air must be laughing their heads off at what's just happened in Canada."

 

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