Ottawa Hikes Film Tax Breaks Despite U.S. Anger
By JAMES ADAMS and MICHAEL POSNER
Globe and Mail Update
POSTED AT 2:09 AM EST Wednesday, Feb. 19, 2003


Jean Chrétien won't be bullied by Hollywood entertainers or U.S. politicians who want to blame Canada for stealing film production work.

The federal government has decided to raise incentives for foreign movie productions in Canada, a move sure to anger some U.S. politicians and film workers further.

At the same time, in Tuesday's budget, the government slashed funding for homegrown TV production, cutting the Canadian Television Fund by $25-million a year for the next two years. That's a 25-per-cent reduction.

Foreign film and TV producers saw their production tax credits jump to 16 per cent from 11 per cent of eligible Canadian labour expenses Tuesday.

That will help attract ó or keep ó American productions in such film hotbeds as Toronto and Vancouver and mitigate the effect of eliminating a popular tax-shelter scheme last year. That scheme had lowered production costs by about 10 per cent.

Canada has often been the target of criticism by U.S. entertainment industry workers concerned about "runaway productions," films that go outside the United States to cut production costs.

Last week Mayor Richard Daley of Chicago criticized U.S.-based film companies for using Canada as a location, citing the fact that the Oscar- nominated musical hit "Chicago" was shot almost entirely in locations in and around Toronto in 2002.

Actor Robert Duvall recently said he prefers not to work in Canada because "there are better actors down here in the U.S."

The federal tax change represents a more aggressive approach to attracting foreign productions.

Until Tuesday, the theory seemed to be that an 11-per-cent production-tax credit combined with the weak Canadian dollar and provincial incentives would keep U.S. production companies interested in Canada as a location.

(In Saskatchewan, for example, a runaway production could save 35 per cent of the cost of its Canadian labour.)

However, various factors clearly prompted a rethink: a rising Canadian dollar, a no-growth picture in Ontario's production industry last year, the prospect of more competition from other countries and the likelihood of a drop in soon-to-be-published B.C. offshore production statistics.

Finance Minister John Manley's plan to reduce the Canadian Television Fund by $25-million a year for the next two years got a negative reaction from representatives of the domestic TV industry.

While the federal government announced it would continue to finance the fund with $75-million over each of the next two years, that's 25 per cent less than the $100-million the Liberals have been contributing annually since 1996.

"There's going to be a lot of unhappy people," said Phil Serruya, director of communications for the fund.

Previously, the fund had estimated that an annual budget reduction of $25-million would mean it could support about 60 fewer productions each year. It estimated that this could cut production activity by $83-million and original programming by 390 hours a year.

Veteran Ottawa bureaucrat Sandra Macdonald, the fund's chief executive officer, applauded the government's two-year commitment, saying it provided "some much-needed stability for the television industry." However, Kelly

Beaton, spokeswoman for the Canadian Association of Broadcasters, the major private-sector lobby group, said she was "surprised and clearly disappointed. ... There is a correlation to the production of Canadian programming."

Jason MacDonald, corporate affairs spokesman for the CBC, echoed both Ms. Macdonald and Ms. Beaton's views. While the two-year commitment provides "some stability, we will have to adjust to a smaller resource base. Canadian production plays an important role in supporting CBC's French- and English-language prime-time schedule."

The CBC, which has received additional funding of $120-million in the last two budgets, was not mentioned in Mr. Manley's budget presentation Tuesday. Any trims to the Crown corporation, which has an annual budget of about $900-million, will be in the budget estimates that will be published by the end of the month.