Alberta government peddles fanciful numbers for film and TV tax credit returns

According to a recent announcement, the Smith government plans to expand film and television tax credits in Alberta. The government claims the program is “generating a four to one return on investment for the government” and is therefore expanding eligibility for these handouts to reality television and game show productions. And that this will “encourage further investment, including investment in labour force development, sector infrastructure, and jobs.”

But these claims don’t pass the smell test. Why? Because if there really were investments that reliably generate benefits that are fourfold the initial investment, there would be no need for a government program. Private investors would line up to provide capital for these film and television projects.

If the Smith government’s claims about film and television credits don’t pass the smell test, they also don’t pass empirical tests. Numerous studies about these types of programs consistently produce discouraging results (except for studies commissioned by governments to demonstrate the benefits of such spending or studies commissioned by industry associations to whom the subsides flow).

For example, a 2009 study by the Massachusetts Department of Revenue on the state’s film industry tax incentives found that for every dollar spent on tax credits, the state got back only $0.16 in revenue. In 2010, a report from the Center on Budget and Policy Priorities concluded “state film subsidies are a wasteful, ineffective, and unfair instrument of economic development.”

A separate study, also in 2010, for the Tax Foundation, a think-tank in Washington, D.C., noted that state movie production incentives were based on “fanciful estimates of economic activity and tax revenue.” In reality, “movie production incentives are costly and fail to live up to their promises.” Another Tax Foundation study in 2012 surveyed the literature on film incentives and found two studies from Louisiana, which estimated $0.13 to $0.18 in revenue returns for every dollar spent.

The Tax Foundation also noted Connecticut’s Department of Economic Development (which estimated a $0.07 return for every dollar spent), Michigan’s Senate Fiscal Agency (estimated $0.11), and New Mexico’s Legislative Finance Office (estimated $0.14). Even some of the “better” estimates are dismal: Pennsylvania’s Legislative Budget & Finance Committee estimated $0.24 return on the dollar) and Arizona’s Department of Commerce (estimated $0.28 return).

Clearly, if Alberta’s film and television tax credits are generating “a four to one return on investment for the government” then Alberta is an aberration. Or, as is more likely, the “four to one return” claim is nonsense.

In reality, film subsidies run into the same problem as any other form of corporate welfare—if the economic activity is worthwhile it doesn’t need a subsidy, and if it isn’t worthwhile it shouldn’t get one. It’s true that subsidizing film and television production increases such activity and creates jobs in film and television. But this isn’t net new activity and net new jobs. By shifting resources and money, the government is just shifting jobs into film and away from other sectors.

Of course, there’s nothing wrong with Albertans or the Smith government wanting a thriving film and television production sector. But Albertans also want thriving oil and gas companies, restaurants, electronics stores, financial institutions, clothing shops, daycares, bookstores, manufacturing companies and so on. Subsidies for film and television may help that sector, but at the expense of all others, with the government distortion and reallocation of resources causing an overall net loss.