Brad Wall’s Wonderful World of Laissez-Faire

In the wake of Wednesday’s Saskatchewan budget which saw the elimination of the Saskatchewan Film Employment Tax Credit and with it the almost certain demise of the industry in the province, Premier Brad Wall tweeted: “If an industry cannot survive at all without a permanent taxpayer subsidy, should the taxpayers subsidize indefinitely?”

This is an excellent question posed by our premier. So let’s look at all those industries that manage to “stand on their own two feet” as it were and forgo any and all government assistance in our province.

Oil and gas, the economic powerhouse of the province and awash in profits must be a model of laissez-faire integrity. Surely it doesn’t need government handouts to make a go of it in Saskatchewan? Let’s take a look:

  1. Drilling royalty relief deductions are provided to companies to encourage new drilling in the form of drilling incentives. The royalty tax rate is reduced for an initial volume of production.
  2. The “Oil Well Reactivation Program” is designed to encourage oil wells that are currently shut-in or suspended to be reactivated. Oil produced from these wells is reclassified as new oil for production tax purposes resulting in a lower tax royalty rate.
  3. The “Workover Reclassification Program” encourages investments to increase oil production from existing wells by performing “workovers” (wells that require significant repairs or modifications). Incremental oil produced from these wells is reclassified as new oil for production tax purposes resulting in a lower tax royalty rate.
  4. The “Royalty Tax Rebate” is designed to offset the provincial portion of income taxes that are payable as a result of the federal government’s decision to disallow provincial royalties and similar taxes as deductions in determining taxable income.
  5. Saskatchewan oil producers are allowed to deduct arm’s length transportation expenses incurred in transporting clean oil from the well-head to the point at which the oil is sold. This is deducted for royalty calculation purposes.
  6. Enhanced Oil Recovery Royalty Regime lowers royalty rates to allow EOR projects to recover investment and operating costs including a 5 per cent annual gross return and is based on project profitability and investment payout.
  7. Enhanced Oil Recovery Tax Exemption. Chemicals and agents used for injection to enhance oil recovery are exempted from provincial sales and fuel taxes.

This is just a sampling of the many subsidy programs offered to the oil and gas industry in Saskatchewan. In total, the International Institute for Sustainable Development estimates total government subsidies to the industry in the area of 327 million per year.

Okay, so what about potash? Surely the pink gold of the province is profitable enough to sustain the industry without resort to corporate welfare?

  1. Retroactive to January 1, 2005, there is a 10-year tax holiday from base payments on expansions of potash mines that exceed productive capacity of 200,000 tonnes of potassium chloride (KCl) per year.
  2. The province is also providing a capital investment incentive to promote expansion of production. The depreciation rate on capital expenditures in excess of the base (defined as 90% of 2002 capital expenditures) is set at 120%.
  3. Effective Jan. 1, 2010, companies would be eligible to deduct from the potash production tax $100,000 a year for every new corporate office job created in Saskatchewan or relocated here. The hefty deduction can be claimed for each job for five years, after which the deductible will be lowered to $25,000 per job. The announcement also outlined a $25,000 per year deduction for all existing corporate office jobs — a reward for potash companies that already have established offices here.
  4. Also note that Saskatchewan industry – such as potash – which is a vociferous consumer of electricity, benefits from subsidized, cheap power from the provincial crown.

Okay, so apparently our resource sector requires generous government supports to be able to make a go of it in the rough and tumble world of competitive capitalism. Surely, there must be some industry in the province that has the wherewithal to refuse the benevolence of Saskatchewan’s corporate welfare state? What about Agriculture?

“Saskatchewan-based companies involved in the value-added processing of agricultural products can apply for project funding to a maximum of $50,000 over a four-year period for prototype and product development; systems improvements; marketing/marketing opportunities; and skills and training.”

Manufacturing?

“Saskatchewan-based manufacturing and processing firms can have their corporate income tax rate reduced to as low as 10% depending on their allocation of income to Saskatchewan.”

Small business?

“Small Business Loans Association (SBLA) Program provides business development opportunities to entrepreneurs that have difficulties in obtaining traditional and/or sufficient financing. Monies are disbursed interest free to Small Business Loans Associations to a maximum credit line of $200,000.”

 Fishing?

“The Commercial Fishing and Freight Subsidy and Price Support Program provides financial support for the commercial fishing industry in northern Saskatchewan through two components: a freight subsidy and a price support mechanism.”

Sorry Brad, it seems virtually all of Saskatchewan’s economy relies to some extent on government incentives or subsidies. Perhaps our premier should do a quick study on our province’s economy before he feels the urge to tweet in the future. Saskatchewan has always required government supports and incentives to direct private investment to areas deemed essential to the health of the provincial economy. Mr. Wall may well wish for Saskatchewan to be a model of laisse-faire economics, but if he were to apply the same logic to the whole of the Saskatchewan economy that he has to the film industry, he just might be surprised by the result.

Simon Enoch is Director of the Saskatchewan Office of the Canadian Centre for Policy Alternatives. He holds a PhD in Communication and Culture from Ryerson University.

15 comments

  1. Unfortunately, Brad Wall’s question should have been posed before the budget dropped. He’s a smart man, and I’m confident he will realize he has been misinformed by his advisors. The SFETC is a revenue neutral program, and winding it down is not cutting a program, it is cutting and industry and forcing families out of the province. The Sask Party have an opportunity here to change the attitudes of artists in this province by supporting them. If Brad Wall steps up and saves the film and television industry, he will gain a tremendous amount of support!

  2. “If Brad Wall steps up and saves the film and television industry…”

    Excuse me? Reversing a bad decision – if that even happens – falls well short of “saving” anything, and Wall should get absolutely no credit if he actually changes his mind. He should have his feet held to the fire – and rightfully so – for even having the idiotic idea to eliminate the tax credit in the first place.

    If the Sask Party does change course on this, Wall (and any of his apologists) should certainly not be permitted to hide behind “advisors” as the reason for cutting the tax credit, only to be given credit for restoring it – which, again, I have a hard time seeing.

    Giving someone credit for fixing their own screw-ups is at best damning with faint praise. Wall and the rest of Saskatchewan’s political leaders should be held to a much higher standard.

  3. The Premier relies on information from his advisors, and we know his advisors did not consult with industry in making this decision.
    I am confident if Premier Brad Wall personally consults with Ron Goetz (President of SMPIA) and other industry professionals, he will see the economic benefits the film industry brings to the province.
    Brad Wall has been very supportive of this industry in the past, and I hope he will be again.

  4. If Mr. Wall wants to run the government as a business, perhaps he should go without government subsidies; or should we all refuse to pay provincial taxes? 🙂

    Seriously, I agree that private industry should be able to exist without government subsidies. But this is the real world, and business doesn’t pay for itself willingly – even Walmart benefits from subsidies in Saskatchewan. Why should the film industry be any different?

    Two artists I work with benefited from the Vampire Dog production last year, and one of my sons worked on that movie as a production assistant. SIAST will be able to wind down their set safety course as a result of the government’s budget, and the sound stage – one of the largest in Canada, I’m told – will once again be in danger.

    I Wonder how much Rogers was subsidized when it bought the remains of SCN for ten times the government’s selling price.

  5. Well, as a former Sask resident this looks real bad. It makes no sense to not make a film employment investment in the Sask economy when not long ago there was the ongoing mass exodus from the province to other “have” provinces. If Mr. Wall thinks this will save some money, he is right, but at what cost? Why would any producer stay in Sask as opposed to crossing the invisible and unguarded border to Manitoba, Alberta, etc in order to get the “feeling” and landscape as if they are in Sask? This is not a short-term industry either- this is something that will continue to develop and flourish for the province. This is not a hand-out, it is an “investment” for Sask with real jobs and a real boost to the economy that has suffered for years. The world economy is still fragile, even though Canada is doing better than others, but to short-change the Sask economy when other industries have ongoing subsidy is completely wrong. Do the right thing Mr. Wall and support the Sask Film Employment Tax credit!!!

  6. You realize there is a big difference between a tax reduction and a tax credit for the film industry, don’t you? Film tax credits are refundable. In essence, because the tax liabilities of the production companies is usually less than 10% of the value of the credits, the vast majority of them a refunded for cash. None of the oil breaks you mentioned function as direct cash refunds.

    1. You mean like this?

      http://finance.gov.sk.ca/revenue/mfg/bulletins/MP02-MandPInvestmentTaxCredit.pdf

      “The Saskatchewan Investment Tax Credit (ITC) for Manufacturing and Processing (M&P) is available to all M&P corporations filing a T2 Corporation Income Tax (CIT) Return with some allocation of taxable income to Saskatchewan.”

      “As an example, a company purchasing a piece of equipment costing $100 after October 27, 2006 would pay $5 PST for a total cost of $105. Calculation of the ITC is 5 per cent of the $105 capital cost, for a credit of $5.25.”

  7. Well a tax reduction or expenditure still operates to reduce government revenue, whether it’s paid out directly by the government or not collected in the first place. But I get your point, there do exist various direct cash transfers to the oil industry in Saskatchewan mainly in the area of environmental initiatives that the province pays a portion of. Space considerations prevented me from listing all of the various programs in place that directly or indirectly subsidize the oil industry.

  8. Got it. The oil incentives make even less sense than the film credits. It’s not like they can leave. But neither industry should get them. Ideally, all of the provinces could eliminate their film incentives and rely on the federal credit alone. This would end the competition and allow projects to shoot where they want to based on telling the best story rather than who is writing the biggest check.

  9. I would like to believe that Mr. Wall’s MLA’s are asking him to reconsider the decision but for the right reasons. The film and television industry brings in investment dollars from outside our borders. And at the end of the day we are a better province with talented and creative people living and loving Saskatchewan rather than working and surviving elsewhere in the country.

  10. “Excuse me? Reversing a bad decision – if that even happens – falls well short of “saving” anything, and Wall should get absolutely no credit if he actually changes his mind.

    You’re right. He should stick by his decision if he gets no credit for it anyway.

  11. On Wednesday we’re helping friends move away because of this decision. A 15 year film industry vet is being driven away. Who cares, right?

    His wife is a highly sought after nurse and daughter just completed med school and opted to cancel her internship here and got one close to the family. Her fiancee is an engineer and he’s now leaving the province as well.

    It killed one industry job directly, but the collateral damage is 3 more sought after professionals leaving. I have to believe there’s scores of other examples and the true damage is more widespread than even these numbers can reveal.

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