US embassy cable - 05HALIFAX101

UNCLAS HALIFAX 000101 
 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, EINV, ELAB, PREL, CA, Nova Scotia 
SUBJECT: NOVA SCOTIA UPS FILM TAX CREDIT 
 
1.  SUMMARY:  The government of Nova Scotia has recently 
revamped its film tax credit in an attempt to win back some of 
the production contracts that have been lost recently to 
competition from other provinces and the United States. 
However, although this tax credit increase will likely stave off 
some of the competition from other Canadian provinces, at least 
temporarily, the rising Canadian dollar and continuing pressure 
from other provinces and the U.S. make the future of the Nova 
Scotia film industry potentially a story without a happy ending. 
 END SUMMARY. 
 
2.  Employing some 2,100 people and bringing in well over C$100 
million per year for the province, the film industry is a 
lucrative business which the Nova Scotia government hopes to 
encourage.  However, provincial film industry revenues decreased 
from C$137 million in 2003 to C$113 million in 2004 with 
estimates for the 2004-2005 year declining yet again to less 
than C$100 million-the first time production has fallen below 
C$100 million in the last decade.  Direct employment in the N.S. 
film industry has dropped 22 percent since 2001. 
 
3.  Facing pressure from industry leaders and provincial NDP 
opposition leader, Darrell Dexter, Premier John Hamm announced 
on March 8 that he was increasing the N.S. film tax credit from 
30 to 35 percent for productions located within the Halifax 
Regional Municipality and from 35 to 40 percent for productions 
in areas 30 kilometers (19 miles) or more from the city core. 
Hamm also introduced a frequent filming bonus of 5 percent for 
companies that shoot two films in the region over a two-year 
period and gave the Nova Scotia Film Development Corporation 
C$600,000 to be used for program planning in 2005-6. 
 
4.  These increases are largely in response to similar tax 
credit increases and frequent film bonuses that were introduced 
in other Canadian provinces, particularly in Manitoba, B.C. and 
Ontario.  Although Nova Scotia was the first province in Canada 
to introduce a tax credit system, virtually every Canadian 
province has since adopted the incentive program.  Ontario and 
B.C. announced increases in their tax credits in December 2004 
and January 2005, respectively, with both provinces increasing 
their tax credits on domestic productions to 30 percent and the 
foreign tax credit to 18 percent.  Manitoba's tax credit 
provides 35 percent on eligible labor costs, and includes a 
frequent-filming bonus similar to the one Nova Scotia recently 
announced.  Thus, when compared to similar increases in other 
Canadian provinces, Nova Scotia's incentive increases are not 
exceptional and seem largely reactionary. 
 
5. Although these tax credit changes might serve as a stop-gap 
measure to recover some business lost to Manitoba in the past 
couple years (Manitoba's revenues increased from C$62.8 million 
in 2002 to C$107 million in 2004), the downturns witnessed in 
Nova Scotia's industry are largely reflective of wider trends in 
the Canadian film industry.  By year's end in March 2004, total 
film and television production in Canada dropped from C$4.92 
billion from C$5.03 billion-with decreases in both foreign and 
domestic production. 
 
6.  COMMENT:  With the rise of the Canadian dollar, the SARS 
outbreak in 2003, consumer and producer preference for reality 
television over drama and "made-for-TV" movies, as well as 
funding cutbacks for major American and Canadian broadcasters, 
it seems that Nova Scotia's problems may not be isolated.  This 
may be a story without a happy ending.  END COMMENT. 
 
HILL