Colm’s columns

Colm Rapple
Irish Mail on Sunday, 10th February 2008

The Government has poured almost €100 million of taxpayers money into the film and TV production industry over recent years by way of tax relief and grants. But we got little or no return from that money according to a report commissioned by Finance Minister Brian Cowen. There is no doubt that there were benefits. High earners gained massively from the tax relief and jobs were created. But the benefits, even using a very broad definition of benefit, scarcely outweighed the costs.

That was something that the Minister didn’t mention when he announced an extension of the incentives until 2012 and raise the eligible investment per project from €35m to €50m.

Neither did he mention the fact that the Indecon consultants, who drew up the report, concluded that a continuation of the incentives could only be justified as a means of giving the industry a breathing space in which to address its longer term sustainability.

Other similar incentives, mainly linked to property investments, have been phased out. Some of them may have provided real economic benefits when first introduced in the pre-Celtic tiger days by promoting investment that would otherwise not have taken place. But they had outlived their usefulness.

Could the same be said for the film reliefs? Indecon was given a wide brief.

Many countries provide incentives to attract film makers but our tax breaks seem to have been particularly badly structured while little has been done to enhance the many other potential attractions of Ireland as a location for film makers.

Indecon recommended that the Irish Film Board, in conjunction with the industry, develop a long term strategy to address the sustainability of the industry. Its competitiveness is based principally on tax incentives that can easily be replicated by other countries. No industry is sustainable on that basis, it concluded.

The consultants issued that self-same warning in an earlier report published in 1998. It stressed the need for the industry to develop a competitive advantage based on factors other than government hand-outs. It even used the word “urgent”. But then, as now, the Government simply extended the incentives using tax payers money to attract film makers.

We were encouraged to believe that the strategy was a success. The film makers have come, films have been made, but until now no-one has been counting the cost. That’s what Indecon did for the 3 years, 2004, 2005 and 2006.

Over those 3 years, it estimated, investors had managed to trim €75 million off their tax bills as a result of the scheme. That’s a real cost in tax revenue foregone by the Exchequer. A further €16 million was handed out by the Irish Film Board. That’s a net figure that takes account of the money that it recouped from some projects. Add in a little for administration and the total cost to the taxpayer came to €91 million.

The benefits are harder to calculate. There were extra people employed as a result of the incentives and they paid taxes. There were fewer people drawing social welfare and the Exchequer also benefited from extra VAT and Corporation Tax. The spending spreads out through the economy with a multiplier effect but the calculations are, at best, guesstimates. For instance, given the near full employment of recent years, many of those employed in the industry would possibly have found jobs elsewhere in the economy.

But on the basis of reasonable assumptions, the report concludes that, taking account of the benefits that would have occurred even without the incentives, the gain over the three years in the form of direct tax benefits and multiplier effects was about €75 million.

That’s a good bit down on the estimated €91 million cost. But there are less tangible benefits to include in the mix. The film industry provides cultural benefits, helps in the development and retention of creative talent and may help to promote tourism. Indecon valued those benefits at €21 million bringing the total benefit to just above the total cost.

Taking all the potential benefits, tangible and intangible into account, the €91 million of taxpayer’s money spent on the film industry yielded no real return. So was it worth while, or would money have been better spent on something else? Maybe we should have been promoting multi-media developments, internet projects, or simply investing more in general education, health or roads.

Or maybe, the money could have promoted a better return from the film industry had it been spent in a different way , for instance by way of direct grants for production or the development of skills and infrastructure. The report certainly indicated such alternatives could yield better returns. So did the 1998 report. But we are still waiting and Mr Cowen seems to have put the matter on hold for another four years while the taxpayer picks up the tab.

The Minister also ignored a conclusion that the level of tax relief given for TV productions is “probably not justified” since they are more attractive than those in other countries and many RTE commissioned programmes would get produced without any tax incentive. While Indecon didn’t suggest an immediate abolition of the reliefs, it did recommend that there shouldn’t be any extra benefits for TV productions.

But the increased tax threshold proposed by Mr Cowen will benefit both film and TV productions while there has yet to be any suggestion that a new strategy is even being considered. Mr Cowen doesn’t seem to have been listening.

This entry was posted on Sunday, February 10th, 2008 at 9:07 pm and is filed under Budget comment, Tax policy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.