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Netflix in Canada—All in the name of ‘modernizing’ broadcasting: Peter Menzies

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From the MacDonald Laurier Institute

By Peter Menzies

Canada’s content czars are stuck in the past and trying to drag everyone back with them

Next week, the Canadian Radio-television and Telecommunications Commission (CRTC) will go live with its efforts to wrestle the internet and those who stream upon it into submission. Whether it fully understands the risks remains unclear.

There are 127 parties scheduled to appear before a panel of commissioners at a public hearing in Gatineau starting November 20. The tone-setting opening act will be Pierre-Karl Peladeau’s always-scrappy Quebecor while the UFC will throw the final punches before the curtain drops three weeks later.

The list of presenters consists mostly of what those of us who have experienced these mind-numbing hearings refer to as “the usual suspects”—interests whose business plans are built around the Broadcasting Act and the requirements of related funding agencies.

The largest Canadian companies will ask the CRTC to reduce its demands upon them when it comes to feeding and watering Big Cancon: the producers, directors, actors, writers, and other tradespeople who make certified Canadian content.

Quebecor, for instance, will be arguing for its contribution to be reduced from 30 percent of its revenue to 20 percent—a draw it proposes be applied to designated streamers. More money from foreign companies and less from licensed domestic broadcasters will be a recurring theme.

But there will also be a new slate of actors—those with business models designed to entertain and attract consumers in a free market—who will be staring down the barrel of CRTC Chair Vicky Eatrides’ stifling regulatory gun for the first time.

Disney+ is set to take the stage on November 29. Meta, the Big Tech bete noire that refused to play along with the Online News Act, is up on December 5.

But the big day will almost certainly be November 30 when Netflix locks horns with the Commission and what appear to be its dangerously naive assumptions.

More than half the streamer’s 30-page submission is dedicated to detailing what it is already contributing to Canada.

Some examples:

  • $3.5 billion in investment;
  • Thousands of jobs created;
  • Consumers are 1.8 times more likely to watch a Canadian production on Netflix than they are on a licensed TV network;
  • Le Guide de la Famille Parfaite—one of many Quebec productions it funded—was in Netflix’s global top 10 for non-English productions for two weeks.

Netflix is insisting on credit for what it already contributes. It has no interest in writing a cheque to the Canada Media Fund and takes serious umbrage with the CRTC’s assumption it will.

“The (hearing) notice could be understood to suggest that the Commission has made a preliminary determination to establish an ‘initial base contribution’ requirement for online undertakings,” Netflix states in its submission. “The only question for consideration would appear not to be whether, but rather what funds would be the possible recipients of contributions.

“Netflix submits that this is not an appropriate starting point.”

It gets worse. The CRTC is considering applying some of the non-financial obligations it imposes on licensed broadcasters such as CTV and Global to the streaming world.

Executive Director of Broadcasting Scott Shortliffe told the National Post recently that “Netflix is clearly producing programming that is analogous…to traditional broadcasters” and that it could be expected to “contribute” in terms of the shape of its content as well as how it spends its money.

In other words, the CRTC’s idea of “modernizing” broadcasting appears heavily weighted in favour of applying its 1990s way of doing things to the online world of 2023.

If that’s the case, the Commission is entirely unprepared to deal with the harsh truth that offshore companies don’t have to play by its rules. For decades, primary CRTC hearing participants have been dependent on the regulator. In the case of broadcasters like CTV and cable companies such as Rogers, their existence is at stake. Without a license, they are done. Which means they have to do what the Commission wants. But if the regulatory burden the CRTC places upon the offshore streamers doesn’t make business sense to them, they are free to say, “Sorry Canada, the juice just isn’t worth the squeeze. We’re outta here.”

This is most likely to occur among the smaller, niche services at the lower end of the subscription scale. The CRTC has to date exempted only companies with Canadian revenues of less than $10 million. Any company just over that line would almost certainly not bother to do business in Canada —a relatively small and increasingly confusing market—if the regulatory ask is anything close to the 20 percent commitment being suggested.

Ditto if the CRTC goes down the road Shortliffe pointed to. It would be absurd to impose expectations on unlicensed streamers that are similar to those applied to licensed broadcasters. For the latter, the burden is balanced by benefits such as market protection granted by the CRTC.

For streamers, no such regulatory “bargain” exists. Too much burden without benefits would make it far cheaper for many to leave and sell their most popular shows to a domestic streamer or television network.

The Online Streaming Act (Bill C-11), which led to this tussle, was originally pitched as making sure web giants “contraibute” their “fair share.”

So, as it turns out, was the Online News Act (Bill C-18).

That legislation resulted in Meta/Facebook getting out of the news business and Google may yet do the same. As a consequence, news organizations will lose hundreds of millions of dollars. Many won’t survive.

Eatrides and her colleagues, if they overplay their hand, are perfectly capable of achieving a similarly catastrophic outcome for the film and television industry.

Peter Menzies is a Senior Fellow with the Macdonald-Laurier Institute, a former newspaper executive, and past vice chair of the CRTC.

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New York and Vermont Seek to Impose a Retroactive Climate Tax

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From Heartland Daily News

By Joshua Loucks for the Cato Institute.

Energy producers will be subject to retroactive taxes in New York if the state assembly passes Senate Bill S2129A, known as the “Climate Change Superfund Act.” The superfund legislation seeks to impose a retroactive tax on energy companies that have emitted greenhouse gases (GHGs) and operated within the state over the last seventy years.

If passed, the new law will impose $75 billion in repayment fees for “historical polluters,” who lawmakers assert are primarily responsible for climate change damages within the state. The state will “assign liability to and require compensation from companies commensurate with their emissions” over the last “70 years or more.” The bill would establish a standard of strict liability, stating that “companies are required to pay into the fund because the use of their products caused the pollution. No finding of wrongdoing is required.”

New York is not alone in this effort. Superfunds built on retroactive taxes on GHG emissions are becoming increasingly popular. Vermont recently enacted similar legislation, S.259 (Act 122), titled the “Climate Superfund Act,” in which the state also retroactively taxes energy producers for historic emissions. Similar bills have also been introduced in Maryland and Massachusetts.

Climate superfund legislation seems to have one purpose: to raise revenue by taxing a politically unpopular industry. Under the New York law, fossil fuel‐​producing energy companies would be taxed billions of dollars retroactively for engaging in legal and necessary behavior. For example, the seventy‐​year retroactive tax would conceivably apply to any company—going back to 1954—that used fossil fuels to generate electricity or produced fuel for New York drivers.

The typical “economic efficiency” arguments for taxing an externality go out the window with the New York and Vermont approach, for at least two reasons. First, the goal of a blackboard or textbook approach to a carbon tax is to internalize the GHG externality. To apply such a tax accurately, the government would need to calculate the social cost of carbon (SCC).

Unfortunately, estimating the SCC is methodologically complex and open to wide ranges of estimates. As a result, the SCC is theoretically very useful but practically impossible to calculate with any reasonable degree of precision.

Second, the retroactive nature of these climate superfunds undermines the very incentives a textbook tax on externalities  would promote. A carbon tax’s central feature is that it is intended to reduce externalities from current and future activity by changing incentives. However, by imposing retroactive taxes, the New York and Vermont legislation will not impact emitters’ future behavior in a way that mimics a textbook carbon tax or improves economic outcomes.

Arbitrary and retroactive taxes can, however, raise prices for consumers by increasing policy uncertainty, affecting firm profitability, and reducing investment (or causing investors to flee GHG‐​emitting industries in the state altogether). Residents in both New York and Vermont already pay over 30 percent more than the US average in residential electricity prices, and this legislation will not lower these costs to consumers.

Climate superfunds are not a serious attempt to solve environmental challenges but rather a way to raise government revenue while unfairly punishing an entire industry (one whose actions the New York legislation claims “have been unconscionable, closely reflecting the strategy of denial, deflection, and delay used by the tobacco industry”).

Fossil fuel companies enabled GHG emissions, of course, but they also empowered significant growth, mobility, and prosperity. The punitive nature of the policy is laid bare by the fact that neither New York nor Vermont used a generic SCC or an evidentiary proceeding to calculate precise damages.

Finally, establishing a standard in which “no finding of wrongdoing is required” to levy fines against historical actions that were (and still are) legally permitted sets a dangerous precedent for what governments can do, not only to businesses that have produced fossil fuels but also to individuals who have consumed them.

Cato research associate Joshua Loucks contributed to this post.

Originally published by the Cato Institute. Republished with permission under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.

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Capital gains tax hike will cause widespread damage in Canadian economy

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From the Fraser Institute

By Jake Fuss and Grady Munro

According to an analysis by economist Jack Mintz, 50 per cent of taxpayers who claim more than $250,000 of capital gains in a year earned less than $117,592 in normal annual income from 2011 to 2021. These include individuals with modest annual incomes who own businesses, second homes or stocks, and who may choose to sell those assets once or infrequently in their lifetimes (such as at retirement)

On Monday, two months after tabling the federal budget, Finance Minister Chrystia Freeland introduced a motion in Parliament to increase taxes on capital gains. On Tuesday, the motion passed as the NDP, Bloc Québécois and Green Party voted with the Liberals. Unfortunately for Canadians, the tax hike will likely hurt Canada’s economy. And the finance minister continues to make misleading claims to defend it.

Currently, investors who sell capital assets pay taxes on 50 per cent of the gain (based on their highest marginal tax rate). On June 25, thanks to Freeland’s motion, that share will increase to 66.7 per cent for capital gains above $250,000. (Critically, the gain includes inflationary and real increases in the value of the asset.)

According to Minister Freeland, the hike is necessary because it will bring in more than $19 billion of revenue over five years to pay for new spending on housing, national defence and other programs. This claim is disingenuous for two reasons.

First, investors do not pay capital gains taxes until they sell assets and realize gains. A higher capital gains tax rate gives them an incentive to hold onto their investments, perhaps anticipating that a future government may reduce the rate. Individuals and businesses may not sell their assets as quickly as the government anticipates so the tax hike ends up generating less revenue than expected.

Second, the government does not have a revenue problem. Annual federal revenue is increasing and has grown (nominally) more than $185 billion (or 66.2 per cent) from 2014-15 to 2023-24. Before tabling the budget in April, the government was already anticipating annual revenue to increase by more than $27 billion this year. But the government has chosen to spend every dime it takes in (and then some) instead of being disciplined.

Years of unrestrained spending and borrowing have led to a precarious fiscal situation in Ottawa. If the government wanted to pay for new programs, it could’ve reduced spending in other areas. But Minister Freeland largely chose not to do this and sought new revenue tools after realizing this year’s deficit was on track to surpass her fiscal targets. Clearly, raising taxes to generate revenue was unnecessary and could’ve been avoided with more disciplined spending.

Further misleading Canadians, the Trudeau government claims this tax hike will only increase taxes for “0.13 per cent of Canadians.” But in reality, many Canadians earning modest incomes will pay capital gains taxes.

According to an analysis by economist Jack Mintz, 50 per cent of taxpayers who claim more than $250,000 of capital gains in a year earned less than $117,592 in normal annual income from 2011 to 2021. These include individuals with modest annual incomes who own businesses, second homes or stocks, and who may choose to sell those assets once or infrequently in their lifetimes (such as at retirement). Contrary to the government’s claims, the capital gains tax hike will affect 4.74 million investors in Canadian companies (or 15.8 per cent of all tax filers).

In sum, many Canadians who you wouldn’t consider among “the wealthiest” will earn capital gains exceeding $250,000 following the sale of their assets, and be impacted by Freeland’s hike.

Finally, the capital gains tax hike will also inhibit economic growth during a time when Canadians are seeing a historic decline in living standards. Capital gains taxes discourage entrepreneurship and business investment. By raising capital gains taxes the Trudeau government is reducing the return that entrepreneurs and investors can expect from starting a business or investing in the Canadian economy. This means that potential entrepreneurs or investors are more likely to take their ideas and money elsewhere, and Canadians will continue to suffer the consequences of a stagnating economy.

If Minister Freeland and the Trudeau government want to pave a path to widespread prosperity for Canadians, they should reverse their tax hike on capital gains.

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