The Quebec government announced this week that it would cut subsidies across the board by 20%. This includes film and games subsidies:
On the spending side, an across-the-board cut of 20 per cent will be applied to the popular tax credits that government agencies often use to attract investment in industries such as video games, information technology, aerospace and pharmaceuticals.
That’s just the start of a complete review of how business tax credits and subsidies are doled out.
The longer term view by the government is to effectively eliminate industry specific subsidies:
Québec has many targeted tax assistance measures for businesses, particularly large corporations. These measures are costly and can create unfairness. The government wants to gradually change these incentives so that they are general rather than specific in scope. These measures of general scope will be simpler to apply, thus maximizing their benefits and limiting the administrative burden on businesses,
Here is what Quebec currently offered for VFX. On all expenses it paid for 25% of costs. For VFX labor it adds 20% on top of the 25% and when you add the 16% federal labor subsidy you could match the 60% subsidy British Columbia offers on labor. Since BC doesn’t offer to pay 25% on non-labor expenses like Quebec does, you can see why many VFX facilities are recently flocking there instead of BC. For the games industry QC offers to pay 37.5% of salaries.
As you can see, this is a completely unsustainable white collar welfare program. The latest budget slashes 20% across the board (so instead of 25%, it’s 20% etc) making it 20% more expensive to do production work there and that’s just the beginning. Those who argued that provinces in Canada could just continue to freely spend money to subsidize their jobs are dead wrong.
While Quebec is deep in debt those in British Columbia should be warned. BC’s debt-to-GDP ratio (17%) is less that half of Quebec but still more than twice of California (7%). The BC government recently proposed $56 million in education cuts which is leading to big strikes.
A few questions remain to be answered:
Are Quebec’s intentions enough to trigger facilities to migrate to another location?
Sony quickly left New Mexico when the newly elected Governor announced intentions to limit the film subsidy program there. If studios are sensitive to costs how will they react to Quebec making it effectively 20% more expensive to do work there?
Did Quebec trigger Imageworks decision to move all operations to BC?
It was always known that Imageworks was trying to move work to BC but why the big announcement now? Could it have been because executives anticipated that Quebec’s intentions would trigger other companies to start flocking to BC?
Are cuts to subsidies in Canada part of a truce sought by BC?
After last year’s elections in BC which involved a big fight to increase subsidies because of larger offers in Quebec and Ontario, BC’s Finance Minister sought to offer a truce with other provinces:
B.C.’s Finance Minister is challenging his counterparts in Ontario and Quebec to stop allowing Hollywood studios to pit the three provinces against each other for “unaffordable” film tax credits.
“As a country, and individual provinces within the country, we are better off to stop competing to see who can send the biggest cheque to Hollywood,” Mike de Jong said Monday.
Two years ago Saskatchewan announced it would end it’s film subsidy programs for similar reasons.