The political history of Nova Scotia -- like that of many jurisdictions -- includes no shortage of irrational escapades. Joining this litany of pointless nonsense is the recent attack by Liberal Premier Stephen McNeill and Finance Minister Diana Whalen on the province's film industry. While this action has garnered much media and public attention, it is by no means the only problematic aspect of the Liberal's budget, and of their vision for the future of Nova Scotia.
Film sector on the firing line
In Stake through the heart: Liberals kill the Nova Scotia film industry, I discussed some of the economic dimensions of the Liberal's proposed elimination of the Film Industry Tax Credit (FITC). In brief, (2014 Nova Scotia government data), the province invested on the order $23.5 million through this tax credit program in an industry valued at $122 million that employs upwards of 1,500 people. Of this investment, some $10.63 million is returned to the government in taxes resulting in a net cost of $12.87 million, about 10.9 per cent of the value of the industry.
On Wednesday, April 15, 2015, the film industry responded with one of the largest -- and certainly best organized -- protest rallies I have witnessed in the 40 years I have been in the province. Many thousands of people surrounded Province House (where the Nova Scotia Legislature sits), marched, chanted, applauded, carried signs, laughed, cheered, jeered, sang, protested, and generally came together as a vibrant community -- one whose future is very much in question if the government's budget measures are passed as proposed.
And given that this was the film industry, there were people on headphones with walkies, call-sheets, a stage with a superlative sound system, a video projection screen with demo reels of Nova Scotia film productions, cranes, and even craft services which fed the assembled masses over four thousand hot dogs complete with Tancook sauerkraut. The event ran like clockwork for six and a half hours.
Why the government should have chosen to pick a fight with the film industry by slashing this tax credit program by 75 per cent is anyone's guess. It has been in existence for twenty years. It wasn't broken; it was working quite well. There was no clamor anywhere for it to be changed. Before the election the premier promised he wouldn't tinker with it. There was no prior consultation with the film industry.
Tax Credits, Rebates, and Tax Expenditures
It's important to point out that the Film Industry Tax Credit is one of 22 tax credits, rebates, and tax expenditures offered by the Nova Scotia government [See: Budgetary Information: Financial Statistics: Schedule 1E. Estimated Value of Tax Credits, Rebates, and Tax Expenditures on page 16]. At 24 million it is not the largest. The Small Business Tax Credit clocks in at $205.5 million; Public Sector Rebates cost $130.1 million; YERP (Your Energy Rebate) uses $115.9 million; the Affordable Living Tax Credit costs $65.8 million; and even the Scientific Research and Experimental Development Tax Credit is a close contender at $18.3 million. Nor is it the most generous. The Political Tax Credit, for example, allows 75 per cent of donations as a tax credit whereas the base level of FITC is 50 per cent.
All of these programs are directed towards what the government has identified as useful goals. Together, they total $637.6 million -- a rather substantial sum.
If restraint in government spending is indeed required in the present circumstances in Nova Scotia (in my estimation, not -- see below), then a careful examination of all these tax credit and rebate programs might be warranted in the context of determining which ones are most effectively meeting their objectives and which could be fine-tuned to improve their impact. For example, the costly ($115.9 million) YERP program has been criticized since its main effect is to subsidize the use of fossil fuels and not to make housing for low income families more energy efficient and better insulated, or to transition to renewable energy sources.
However, rather than a comprehensive appraisal, all the Liberal government has done is to cherry-pick, eliminating one program entirely (the Healthy Living Tax Credit) and cut the value of the FITC by 75 per cent. This doesn't represent a wide-ranging and intelligent review of the costs and benefits of this large suite of economic programs.
Liberal budget: Harbinger of austerity
My article, Stake through the heart: Liberals kill the Nova Scotia film industry examined some of the economic dimensions of this decision. However, the misplaced priorities of the Liberal government are not confined to the film sector. In the 2015-2016 budget currently before the Nova Scotia Legislature, Premier Stephen McNeil and Finance Minister Diana Whalen are:
• Cutting 320 full-time public-sector positions.
• Lifting the tuition cap in a province where student debt already averages $37,000.
• Slashing social spending. Community groups like Deafness Advocacy Association of Nova Scotia, FEED Nova Scotia's Metro Food Bank, Youth Voices of Nova Scotia, Nova Scotia Division of the Canadian Mental Health Association and the Canadian National Institute for the Blind have all had their budgets cut or eliminated entirely.
• Eliminating agencies like Film and Creative Industries Nova Scotia, programs like the Environmental Home Assessment program, and the entire Department of Economic and Rural Development and Tourism (replaced by a Department of Business).
As Canadian Center for Policy Alternatives (CCPA) political scientist Christine Saunier pointed out in Nova Scotia Budget 2015: Ignores real problems, lacks vision in the pages of rabble, not only are the cuts proposed by the government largely unnecessary, but the government has largely missed the opportunity of stimulating the economy through selective investment. It has also ignored the chance to make investments in the social fabric of Nova Scotia that would pay short- and long-term human and economic dividends.
These austerity measures have ostensibly been undertaken by McNeil and Whalen to tackle the province's deficit and debt. However, as the CCPA has pointed out in Budget Backgrounder: Ten NS Fiscal Facts, Nova Scotia's debt is manageable, the deficit is small and cyclical, and cuts to government expenditures produce a fiscal drag that slows down economic recovery.
Nova Scotia's Debt to GDP ratio has steadily fallen from 48 per cent fifteen years ago to 36 per cent in 2013. Debt to GDP ratio is a much better economic metric to focus on rather than simple debt since the former measures the economy's capacity to carry debt. At this level, the Nova Scotia Debt to GDP ratio is very similar to Canada's (33 per cent in 2013), is falling, and requires no dramatic financial surgery.
Furthermore, as the CCPA also point out in Budget Backgrounder: Ten NS Fiscal Facts, the cost of servicing Nova Scotia's debt as a percentage of its GDP has also fallen steadily and substantially from 0.050 per cent of the province's GDP to less than half of that at 0.024 per cent in 2013, in large measure as a result of the extended period of low interest rates. Consequently, now is an excellent time for the province to invest in its economy and social fabric.
However, as Saunier concludes:
Instead of a proactive budget, the government whipped up hysteria about the deficit and debt problems, and did not address the real problems we face as a province, including poverty, illiteracy, lack of regulated affordable, quality child care and our worsening infrastructure deficit. With debt-to-GDP declining and interest rates at a historical low, this budget is a missed opportunity.
Missing the Heart: Shooting the Foot
The political cost of cutting the Film Industry Tax Credit debacle has already been considerable. A number of film productions have already pulled out of the province and others are on hold pending the passage of the budget.
There has been near universal condemnation of the proposal, not only from the film industry, but from the general public (across the length and breadth of Nova Scotia) in rural and urban settings, the media (of all political stripes and from across the province), many municipalities (Halifax, Lunenburg, Chester, Shelburne), the opposition parties (Progressive Conservative, NDP, and Green), political pundits, and even many Liberals. Former Liberal MP and current mayor of the Halifax Regional Municipality, Mike Savage publicly directed comments to the Finance Minister that said, "I urge reconsideration of the dramatic changes to the film tax credit." Many backbench Liberal MLAs have been feeling the political heat.
Former NDP finance Minister Graham Steele wrote:
Stephen McNeil's political instinct has deserted him on the film tax credit. McNeil is as wrong as he could be but he doesn't see it -- and my bet is the people around him don't know how to tell him. This is real bull-in-a-china-shop stuff. McNeil has charged into an industry he plainly doesn't understand, turned around a few times and then told the shopkeepers that we couldn't afford all that broken china anyway. The alternative proposed by the premier might make sense on a Treasury Board flip chart, but it is nonsense in the real world. It won't work and it's not the industry's job to fix it. If the government's proposal goes through, the film industry in Nova Scotia is as good as dead.
The longer the Premier digs in his heels on this issue, the more it underscores both how he and the Finance Minister have failed to grasp the economic realities of the film business, and also the tin ear they have developed for listening to anyone else on this and other issues.
From a broader perspective, the austerity approach to economics -- single-mindedly pursuing short-term debt and deficit reduction even when there is no pressing need to do so -- is politics racing willy-nilly down a blind alley without a long-term vision of how to grow both the economy and society. In the case of the Film Industry Tax Credit, it is starving the goose that laid the golden egg.
[Part I of this series on the Nova Scotia film industry and the austerity agenda of the Nova Scotia government is, Stake through the heart: Liberals kill the Nova Scotia film industry.]
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