It'll take more than Ghostbusters to reinvent the Alberta economy
It’s amazing how times change. It wasn’t that long ago that Alberta was bragging about how it didn’t use government incentives to attract industry. Now, even the conservative government, is doling out the cash right and left to try and get industry to set up there. Of course, I said then, and now, that Alberta never had clean hands when it came to doling out cash - its agriculture sector was awash in subsidies - and still in.
But now they are moving well beyond cash for oil drilling and farming. In the past few weeks there has been money splashed out for blue hydrogen and other projects.
And of course, the tens of millions they spend every year to lure Hollywood.
The Globe and Mail had a mostly puff piece on Alberta’s subsidies to attract blockbuster films (and W movies, etc.).
Here’s an interesting clip from the article:
But the province says the tax credit, with its per-project cap removed early this year, is a potential game-changer – one where every $1 in tax credits distributed means roughly $4 reinvested into Alberta’s economy. The government said if it runs through the $50-million budgeted for the tax credit this fiscal year, it will request more funding.
Sounds pretty good, eh? One buck in, four bucks out. Giddy up.
Not so fast.
Why does government give out subsidies/tax breaks to industry?
To attract business investment that presumably will induce far more tax revenue than is paid to the firm in the first place.
Here’s the math on this:
According to Statistics Canada, in 2017, the motion picture industry in Alberta generated 87 cents of provincial GDP for every $1.00 of spending in that sector in the province (that includes direct, indirect and induced GDP, the whole enchilada). Statistics Canada also reported that year that government ‘subsidies’ to that sector amounted to 33.7 cents per $1.00 of provincial GDP. The multipliers include both federal and provincial subsidies.
So, in theory government would need to generate at least 33.7 cents of tax revenue for every one dollar of GDP - just to break even -without a single incremental tax dollar going to pay for public services.
Again, this include federal and provincial subsidies/tax credits so let’s come back to the money quote in the G&M. Four dollars in spending in Alberta for every one dollar in Alberta government subsidies. To be specific a 25 cent subsidy for every $1.00 in industry spending in the province. Therefore, the movie production industry would need to generate 25 cents in incremental tax revenue for every dollar of spending just to break even. Based on my experience, it is doubtful these projects are even breaking even from a provincial tax revenue generation perspective.
In 2017, governments (all levels) doled out 29.2 cents in subsidies for every $1.00 in motion picture and film industry production spending in Alberta.
In 2016, it was 41.3 cents.
In 2015, it was 41.8 cents.
In 2014 it was 33.5 cents.
In 2013, it was 31.1 cents.
As I have said before, I am not opposed to government subsidies in circumstances where the competition requires it and where it still leads to a substantial ROI on the tax dollars invested.
But when you put in almost as much in subsidies as you get out in incremental tax revenues - what is the point?
The average wage in the oil and gas extraction sector is twice as much as in the motion picture and film production sector.
The Alberta government might be better off pumping 25% subsidies into industries that offer higher wages and a stronger tax multiplier.
The bottom line is that Alberta is now forced to compete for investment in footloose industries just like Ontario, Quebec or Atlantic Canada. And that will likely mean a lot more tax dollars out the door to woo in that investment.